Thursday, February 28, 2008

Orchestrated Dollar Rout?

If you haven’t already heard, a 3-day dollar rout has caused the US Dollar index to drop to its lowest levels EVER—breaking through KEY DOWNSIDE SUPPORT. Today it would have cost $1.523 to buy a Euro (Side note: the US dollar has now fallen > 60% against the Euro since just 2000).

So what happened and why the rout?

1. Durable Goods Orders fell 5.3% this week
2. January New Home Sales fell much more than expected
3. Initial Jobless Claims came in higher than expected

Despite this bad news and bad timing (possibly because of the timing?):

1. Alan Greenspan urged OPEC to abandon their dollar peg--why would he do this if it weren’t pre-coordinated with the PPT?

2. Helicopter Bernanke telegraphed further rate cuts despite rising inflationary pressures--why would he signal new cuts so far in advance and with bad dollar news all around?

What was the overall impact?

1. US Dollar Index hit a record low of 73.625 today, and was en route to post its biggest weekly loss in more than two years—without Plunge Protection Team (PPT) interference
2. Oil topped $102 + Barrel w/o PPT stopping the rise
3. Gold, Silver and numerous other commodities all hit new highs without PPT interference

My thoughts on the issue:

Personally, I have a very hard time believing that all the negative Fed “dollar talk” this week was completely coincidental. I think the bashing was an orchestrated attempt to keep equities in the green, lest they fall back into bear territory and through key downside support levels. (Note: lower dollar usually brings higher equities markets)

Rationale for my thoughts: tomorrow several KEY economic reports are due and equities will likely take a significant hit: (Due tomorrow: Personal Income; Personal Spending; Core PCE Inflation; Chicago PMI; Mich Sentiment Revision). Could this have been an attempt to beef up equities prior to?

Fed success in orchestrating dollar’s fall?

Yes, possibly too much! This three day orchestrated dollar fall was too successful even for the actors… Things got so out of hand, President Bush took to the airwaves today in an effort to restore dollar confidence. Said: “We Believe in a strong dollar policy.”

What next?

We may soon see a short term bounce in the dollar, but as I’ve stated before: I believe it has now become a matter of (unwritten) policy to try to hyper-inflate our financial system out of its current and future insolvency crisis -- Dollar routs help this cause.

In their attempt to inflate, the world will experience significant dollar devaluations which will (over time) allow the United States to 1) eliminate much of its foreign debt and 2) pay for future (currently $60 Trillion in un-funded) obligations through devalued payouts--it's our only way out of the mess we're in--aside from default!!

Long-term impact of Falling Dollar:

Our standard of living in the US will drop significantly--No if's and's or but's about it!

Ultimately, I hope we Americans finally wake up (after the fall -- because it won't happen until we feel significant pain) and press to get rid of all the crooked slime running our government and economy. It's about time we restore a government of the people for the people vs a government for big business, bottom lines and special interest groups.



Wednesday, February 27, 2008

Dishonesty, Lies and then a little more deception

How many times have we heard from our highly paid, politically appointed financial leaders that "The Subprime problem is contained?" How many times have we heard that a US recession will be averted? Far too many... It's all lies, deceit, smoke/mirrors and deception.

Well, Helicopter Bernanke spoke to Congress again today, and though his comments (deceptions) were a bit closer to the truth than previous, I imagine for him to say such things, our economy must be in MUCH, MUCH worse shape than that which he let on to.

In today's speech Bernanke hinted at further rate cuts and stated “The economic situation has become distinctly less favorable since the summer." He then noted that inflation pressures abound, but he feels these pressures will recede by summer due to a slowing economy. He also feels the $168B economic stimulus package will energize the economy by mid-year. (Yea Right).

Bernanke: Fed ready to act to boost economy

WASHINGTON - Federal Reserve Chairman Ben Bernanke warned Congress that the nation is in for a period of sluggish business growth and sent a fresh signal Wednesday that interest rates will again be lowered to steady the teetering economy. (My comment: expect a 50bp cut on or before March 18th)

“The economic situation has become distinctly less favorable” since the summer, the Fed chief told the House Financial Services Committee. (duh--come on Einstein, tell us something we don't know... Even Stevie Wonder can see this)
Since Bernanke’s last such comprehensive assessment last summer, the housing slump has worsened, credit problems have intensified and the job market has deteriorated. Bernanke said that the confluence of these factors has turned people and businesses alike toward a more cautious attitude toward spending and investment. This, he said, has further weakened the economy.

Incoming barometers continue to “suggest sluggish economic activity in the near term,” Bernanke told lawmakers. At the same time, he added, the Fed must keep a close eye on inflation given the recent run-up in energy and other prices paid by consumers and businesses.

Were energy prices to continue to rise at a sharp clip — which the Fed doesn’t anticipate — it would “create a very difficult problem” for the economy. It would spread inflation and would put another damper on growth, Bernanke said. If that happened, he added, it would be a “very tough situation.” (with below comment on the dollar in mind, expect energy prices to rise)

For now though, the No. 1 battle is shoring up the economy. (My thoughts: this statement makes it official--The Fed has sacrificed the US Dollar and will do whatever it takes to try and save our economy... Therefore, you can bet the massive inflation wave has just begun)

Bernanke pledged anew to slice a key interest rate to help the wobbly economy, which many fear is on the verge of a recession — or possibly has already toppled into one. (My Comment: expect to see 2% or below FFR this year and 1% or lower in 2009)

The Fed “will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks,” Bernanke said, hewing closely to assurances he offered earlier this month. (My Comment: ... act in a timely manner to Support growth? Come-on now. I think he really wanted to say "... will act in a timely manner to prevent an economic collapse"

The central bank, which started lowering a key interest rate in September, has recently turned much more aggressive. Over the span of just eight days in January, it slashed rates by 1.25 percentage points — the biggest one-month reduction in a quarter century. Economists and Wall Street investors predict the Fed will cut rates again at its next meeting on March 18.

The Fed chief was hopeful that previous rate reductions along with a $168 billion stimulus package of tax rebates for people and tax breaks for business will energize the economy in the second half of this year. (just ain't going to happen--you're merely applying a band aid on a wound that requires a tourniquet)

Even as the Fed tries to shore up the economy, it must remain mindful of inflation pressures, Bernanke said.

Record high oil prices — topping $100 a barrel — are pushing consumer prices upward. That’s shrinking paychecks, and with people feeling less well off because the values of their homes have dropped, consumer spending “slowed significantly” toward the end of the year, the Fed chief said.

The Fed forecasts that inflation will moderate this year compared with last year. But the Fed’s recently revised inflation projection of an increase between 2.1 percent and 2.4 percent is higher than its old forecast from the fall. (again, w/regard to the US Dollar comment above--inflation isn't going anywhere and will continue to rise. M3 is already at 16% and Consumer price inflation is currently running 12%. This 2.1-2.4% figure is absolutely ludicrous)

Bernanke said there are “slightly greater upside risks” that inflation could turn out to be higher than the Fed currently anticipates, given the recent run-up in energy and food prices. (Again, my Stevie Wonder comment applies here)

“Should high rates of overall inflation persist, the possibility also exists that inflation expectations could become less well anchored,” Bernanke warned. If people, companies and investors think inflation will move higher, they will act in ways that could turn inflation even worse, a sort of self-fulfilling prophecy. And Bernanke said that could complicate the Fed’s job of trying to nurture economic growth while also keeping inflation under control.

11 reasons Bernanke's recession lasts till 2011

ARROYO GRANDE, Calif. (MarketWatch) -- Remember that hot 1973 Stealer's Wheel song marking the end of the Nixon era? "'Cause I don't think that I can take anymore. Clowns to the left of me, jokers to the right, here I am stuck in the middle with you!"

It's still a perfect metaphor. Testifying before Congress: Fed Chairman Ben Bernanke on the left. Treasury Secretary Henry Paulson on the right. The American public stuck in the middle.

Last summer they assured us the subprime-credit crisis was "contained." We now know that was a big lie. They knew, had the facts, early warnings, lied and are still lying. More proof? They just told Congress: "America will avoid a recession." New data tells a different story.
Clowns to the left ... jokers right ... stuck in the middle ... can't take it anymore.

But we have to, we have to hang on at least 10 months more, praying they won't do too much more damage. But I'm afraid they will: more lies, blunders and incompetence will drag out this bear. Like the song says: "Got a feeling something ain't right."

Read the new InvestmentNews, a professional journal for financial advisers. The lead headline grabs you: "Bad times for stocks could last many years." A long secular bear.

Do you believe it? That's the big question today: When's the next bull? How long will the bear last? And forget Washington's rhetoric about "no recession." The truth is, you can call it a "bear," "slow growth," a "downturn," a "recession" -- call it whatever you want. Timing's the real question. How long will it last? When will it bottom? 2008? 2011?

Test your timing skill. You tell us, what'll drag this out 30 months, like in 2000-2002? Or shorten it? Here are 11 critical factors for your timing equation, things that could make this bear-recession shorter or longer. You tell us. Add a comment. What's your prediction: How long before the next bull?

1. Stagflation: Bernanke's no-win Achilles heel

Reading Fed-watcher William Fleckenstein's new book, "Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve," you get the feeling that for 18 years America's banking system was run like a "new age" hippy commune, by a Ayn Rand free spirit who believed "anything goes."

Now the Fed's run by a college professor and Fleckenstein says he's "in over his head." Except this is the real world, a $13 trillion economy in a $48 trillion world, not a college seminar on economic theory.

In the 1970s Nixon faced a similar problem, convinced then by Fed Chairman Arthur Burns: "No one ever lost an election on account of inflation." Wrong! Low rates generated inflation not growth. That stagflation triggered a bear/recession. Is Professor Ben trapped, repeating history?

2. Housing-credit meltdown: We've got a long way to go!

It's far from over folks and still spreading: Years of inventory, foreclosures, building slowdown, risky bond insurers, weak rating agencies, funds holding bad debt, freezing exits and fuzzy math on values. Yet Bernanke and Paulson still live in a Washington bubble of wishful-thinking fantasies.

Economic realists say what's needed is a massive $1.6 trillion demand-driven program (that's the record cash Corporate America's hoarding) not a dinky $160 billion supply-side "appease the voters" giveaway that ends up increasing the odds of a lengthy Nixon/Burns style bear-recession.

3. Commodities: World's new reserve 'currency,' not dollars

Forget paper money and IOUs. Commodities are the world's new "currency:" Hard stuff like oil, grains, metals, gold. And that means America is financing the growth of our enemies, surrendering our long-term economic power for short-term oil-guzzlers and plastic toys. We are responsible for making Russia and China into threatening world powers. Buffett warned us. We're selling the farm, piece by piece.

4. Toxic derivatives: World's $516 trillion ticking time bomb

Derivatives are great for deal-by-deal risk management in a $48 trillion GDP world. But leverage them 10 times over across the globe and we got a financial "weapon of mass economic destruction."

Bill Gross warns that the world's new unregulated "shadow banking system" is printing new money, now at $516 trillion, out of thin air, with no "central banks of last resort" backing up the "Frankenstein" monsters they've created.

5. Massive debt: Everywhere, trade, federal, states, local

America's Comptroller General David Walker, Congress's head accountant who is leaving his position next month, warns our government is "bankrupting America." Using unethical accounting worse than Enron's. Fiscal responsibility lost. He sees "striking similarities" with Rome. Both parties are gluttons in a spending orgy.

We spend-spend, load debt on future generations, then use accounting gimmicks to hide our greedy excesses: Hidden earmarks. Supplemental war appropriations. Meaningless IOUs after stealing from Social Security.
6. America's new 'pushers:' Banks feeding consumer addicts

Trader's Daily captured it perfectly: "Never underestimate the power of the superpsycho, hyper-spending American consumer. Where there is no cash, they will sell their soul. Or just charge it. Let's just not think about what it all means for credit-card debt down the road."

Meanwhile, the credit meltdown is making banks desperate for money. A recent Chase credit-card commercial fuels consumer addictions: Wife wants bigger television. Husband smiles. They shop to the pounding drumbeat of Queen's hit 80s song: "I want it all, I want it all, I want it all ... and I want it now!" Tag line: "Chase what matters!" Yes, Chase debt, all you addicts. Forget saving, spend like there's no tomorrow.

7. More wars: Pentagon predicts bigger, costlier conflicts

The Pentagon's internal studies see a perfect storm accelerating wars worldwide: Global population growth, limited natural resources and global warming. Our war machine is exploding. The Pentagon gets over 50% in the new federal budget. We're only 21% of the world's GDP, yet spend 47% of the world's total military expenditures.

Our power-hungry mindset is becoming self-destructive, suicidal. Remember Nixon strategist Kevin Phillips' warning: "Most great nations, at the peak of their economic power, become arrogant and wage great world wars at great cost, wasting vast resources, taking on huge debt, and ultimately burning themselves out."

8. Greed: Wall Street and Corporate America's defining 'value'

Values start at the top. But the top won't change for 10 months. Leadership, statesmanship and character are vanishing. Five short years ago Corporate America and the mutual fund industry were consumed by greed. How quickly we forget.

It's worse today. We see greed consuming not just Wall Street's clueless CEOs, but the entire industry: Outrageous bonuses of $38 billion amid mega-billion write-offs. Fire sales of billions more American equity to sovereign nations.

From the top down, greed is driving America from bubble to bubble. Wall Street's already fueling the next bubble, trading on a volatile market.
9. Democracy failing: America now run by 35,000 lobbyists!

Forget government "of the people, by the people, and for the people." Adam Smith's "invisible hand" is now a small group of 35,000 highly paid, greedy lobbyists demanding handouts. They run America from the shadows, for those at the top of the economic food chain and vastly outnumber Washington's 537 elected officials.

Nationally there's an estimated quarter million lobbyists, with hundreds of millions of dollars to buy favors in campaign contributions. Politicians talk "change," but America's lobbyists will still be working for their special interest clients in 2009. And they'll fight all "changes."

10. America's already in a recession, and in denial

This year's elections will be a huge factor in lengthening the recession. Our lame-duck government will delay action on critical issues. It reminds me of my days counseling addicts and alcoholics. Change never happens until they admit they have a problem. Same here.

Paulson and Bernanke cannot admit there's a recession. They'd have to take blame for America's failed policies. And congressional Democrats are weak co-conspirators in this meltdown. Nobody has the guts to take responsibility. They're all like addicts and alcoholics, in denial, giving lip-service to "change," while they blame the other guys and support ineffectual stimulus plans.

Vote for whomever, but this lame-duck mindset plus lingering partisan rancor will push any recovery at least into 2009, probably delay the next bull till 2010 or 2011.

11. Class warfare: Superrich vs. Main Street America

No matter who wins, the presidential campaign is warning us: A major battle's coming between "the rich and the rest;" over taxes, benefits, cuts, power.

For years the media collaborated with Wall Street and Corporate America, hyping "Ownership, the New American Dream," where everyone benefits, shares the wealth, gains a piece-of-the-action, ownership in "The Dream" through the magic of housing, stocks, growth, profits, retirement plans. But the housing-credit contagion killed the dream.

Yes, the superrich did get richer. But "the rest" didn't. And they're waking up to a widening gap. A backlash is brewing and will explode ... delaying a recovery and a new bull.

Clowns to the left, jokers right, we're stuck in the middle. Can't take it anymore? Add a timing comment. Tell us: When's the recovery? Next bull? Late 2008? Not till 2011?

Sunday, February 17, 2008

Monetizing Debts & Buying Assets to Prevent a Depression

I was pretty shocked to see this article get released from Reuters. It suggests that the Fed may end up having to resort to buying up assets, stocks etc to prevent a Depression. I would have to concur, as the banking/financial crisis seems to be getting worse. I expect however, we will probably see a FFR below 1% before this actually kicks into high gear.

Depression risk might force U.S. to buy assets:

NEW YORK (Reuters) - Fear that a hobbled banking sector may set off another Great Depression could force the U.S. government and Federal Reserve to take the unprecedented step of buying a broad range of assets, including stocks, according to one of the most bearish market analysts.

That extreme scenario, which would aim to stave off deflation and stabilize the economy, is evolving as the base case for Bernard Connolly, global strategist at Banque AIG in London.

In the late 1980s and early 1990's Connolly worked for the European Commission analyzing the European monetary system in the run up to the introduction of the euro currency.

"Avoiding a depression is, unfortunately, going to have to involve either a large, quasi-permanent increase in the budget deficit -- preferably tax cuts -- or restoring overvaluation of equity prices," Connolly said on Monday.

"If conventional monetary policy is not enough to produce that result, the government may have to buy equities, financed by the Fed," Connolly said.

Legal changes would be needed to give the Federal Reserve and the U.S. government the authority to buy stocks. Currently the Federal Reserve can buy only debt issued by the Treasury, as well as U.S. agency debentures and mortgage-backed securities.

While Connolly already sees some parallels with the 1930s, he expects that a more pro-active central bank and government will probably help avert a repeat of that scenario today.

The build up of a credit bubble in recent years was similar to the late 1920s run-up to the Great Depression, he said.

Then, investors were very optimistic about new technologies, and stocks rose against a backdrop of low inflation, and a trend toward globalization. There was even an equivalent of the modern day subprime mortgage debt meltdown in the form of U.S. loans to Latin American countries which had to be written off.

"The big difference is the attitude of central banks and specifically the attitude of the Fed," Connolly said.

Some economists have blamed the U.S. economy's travails in the 1930s on the Federal Reserve's hesitation to inject reserves into the banking system.

However, today's Fed has tried to preempt the danger of a protracted economic slump and has responded swiftly to a credit crunch in the past year and gathering signs of deterioration in the economy, Connolly said.

The Fed has stepped up its temporary additions of reserves to the banking system, and swiftly slashed its benchmark fed funds target rate to 3.0 percent from 5.25 percent in September. Analysts expect at least another 0.5 percentage point cut in next month.

At the same time, "the fed funds rate can't stay significantly above the 2-year note yield," Connolly said.

On Tuesday, the 2-year Treasury note yield was at 2.00 percent, not far above the lowest level since 2004.

The Fed "almost certainly" has to cut the funds rate to 2.0 percent by the end of this monetary easing cycle, he said. If conditions in the banking sector worsen, the Fed could cut the funds rate to 1.0 percent, a low last seen in June 2004.

Global banks have already written down more than $100 billion of bad debts associated with the U.S. subprime mortgage debt meltdown and housing.

However, Fed rate cuts alone are unlikely to avert a prolonged period of economic weakness because the danger still exists that a burdened banking sector will choke off credit to consumers and households.

"The Fed probably can't fix it all on its own now," Connolly said. "There is a chance the Fed gets forced into unconventional cooperation with government," which could involve buying a range of assets to reflate their value.

That would be reminiscent of some steps the U.S. government took in the 1930s when the economy was mired in deflation and high unemployment.

One turning point came when agricultural prices were restored to their pre-slump levels, Connolly said. Such measures were among the New Deal programs that President Franklin D. Roosevelt launched to bolster the economy.

Either way, investors face bleak prospects now without some kind of further government intervention, he said.

Those steps might offer clues to investors in stocks and commodities, which Connolly expects the government might be ultimately force to step in and buy to stabilize markets. He expects that a depression may be averted, but only by the state and the Fed reinflating the price of such assets.

Beleaguered housing, non-government fixed-income securities and even the now overvalued Treasury market have little hope of generating substantial returns for investors over the next few years, he said.

"If we don't avoid depression, the only thing worth holding is cash," he added.

Additionally, Christopher Laird (from the Prudent Squirrel) is saying much of the same in his new article: The Other Option, Crossing The Rubicon .

With US target rates cut from 5.25% vs 3% now, both consumer and corporate credit have not eased. It is said the US Fed needs to cut to the 2 year bond rate to have any chance of loosening US credit markets - which would be around 2%. The Fed is still behind the curve.

In fact, looking at credit markets now, it looks as if the Fed is not only behind the curve, but has let the train get completely away from them. If they have any hope of catching it, they need a target rate of 2% now. But inflation is still a concern, and that is not going to happen in time.

The other option, Crossing the Rubicon

A while ago I wrote a piece that, if markets got bad enough, central banks could be faced with having to monetize all the bad assets accumulating on financial institutions books. That would be the only way to get banks lending again, and to put a floor on markets.

If CBs saw that interest cuts failed to restart US consumer spending, they would then be faced with the option of actually buying everything in sight to support financial markets. This is monetization of markets. (Monetization is where central banks merely buy everything in sight where the losses are and hold it on their own balance sheets. Presently, central banks are doing what are called REPOs, repurchase agreements, which are short term CB purchases of assets that are supposed to be bought back and the money repaid by the seller. This is short term central bank purchasing of assets, but is not actual monetization, as the assets are only held for a month or so. Monetization would be just wholesale purchases and holding of troubled assets, and no Repo agreement.)

Gold here

With Central banks lowering interest rates, and more to come, gold is rising in all major currencies. This will continue in 08, sans some major world stock crash. But, if central banks actually do the other option, monetization of troubled assets and markets, and cross the Rubicon, then gold will go right out of sight. Even a hint of any serious monetization would drive gold rapidly to $2000.

If we merely have interest rate cuts, gold will get easily over $1000 in 08, probably in a month or two. If there is any significant monetization by Central Banks (perhaps just buying outright all the troubled assets on banks books, right now about $2trilllion worth and counting) gold goes to over $2000 in a few months time.

Monetization is the central bank's Rubicon. They are thinking of crossing it. We are at a decisive point in gold's price action in 08.

Friday, February 15, 2008

Iran’s Oil Bourse Set to Open this Sunday

It looks like the long awaited opening of the Iranian Oil bourse is finally here. This crucial issue has far reaching implications and could become be a grave risk to continued American global hegemony, but as far as I know, our mainstream media has completely ignored the topic.

Petrodollar Hegemony

Today, most oil trading takes place on the New York Mercantile Exchange (NYMEX) and the London-based International Petroleum Exchange (IPE). Since the 1970s, OPEC countries have all agreed to sell oil for US dollars only. This means every country that wants to buy oil must first acquire enough US dollars to buy what it needs--creating a huge worldwide demand for the US dollar and any excess dollars eventually get recycled back to the US.

Year after year, America imports much more than it exports and it must pay out that difference (its current accounts deficit) in printed dollars. In 2006 that deficit was > $850 Billion; 2007 was > $700B; this year, we will see similar figures.

From 1999 though the end of 2006, the United States financed a string of large current account deficits by borrowing $4.4 trillion from other countries—a sum amounting to 85 percent of total net borrowing worldwide (in other words: we sucked up 85% of the worlds excess savings).

Now, if there were no good reasons for other countries to buy all those American dollars, the dollar would decline in value until the US economy could no longer afford to import goods from abroad. Additionally, this excess foreign savings that America has grown used to would also dry up—putting us in quite the predicament.

The deal with OPEC however, means other countries have no choice but to buy all those excess American dollars, which props up the value of the dollar and allows the American "import economy" to go on year after year.

Effectively, America's main export is US dollars, and it is absolutely imperative to preserve a captive market for those dollars among oil-consuming countries--the continued viability of the US economy depends on it. Americans today can still afford to consume because the economy is inundated with cheap imports, but a continued falling dollar (already at its lowest levels in history and bound to drop much further due to Fed & PPT policy of printing money to bail out our banking/financial sectors) will significantly raise the prices of imported goods and our cost of living.

How important is it that oil continues to be denominated in dollars?

The answer to this question could come as early as this week, since the long-awaited Iranian Oil Bourse is scheduled to open Sunday. According to Iran's Finance Minister Davoud Danesh-Jafari, “All preparations have been made to launch the bourse; it will open during the 10-day Dawn (the ceremonies marking the victory of the 1979 Islamic Revolution in Iran) The bourse is considered a direct threat to the continued global dominance of the dollar because it will require that Iranian “oil, petrochemicals and gas” be traded in “non-dollar currencies”. (Press TV, Iran)

The petrodollar system is no different than the gold standard. Today's currency is simply underwritten by the one vital source of energy upon which every industrialized society depends---oil. If the dollar is de-linked from oil; it will no longer serve as the de-facto international currency and the US will be forced to reduce its massive trade deficits, rebuild its manufacturing capacity, and become an export nation again. The only alternative is to create a network of client regimes that repress the collective aspirations of their people so they can faithfully follow directives from Washington.

As to whether the Bush administration would start a war to defend dollar hegemony; that's a question that should be asked of Saddam Hussein. Iraq was invaded just six months after Saddam converted to the euro. The message is clear; the Empire will defend its currency.

Similarly, Iran switched from the dollar in 2007 and has insisted that Japan pay its enormous energy bills in yen. The “conversion” has infuriated the Bush administration and made Iran the target of US belligerence ever since. In fact, even though 16 US Intelligence agencies issued a report (NIE) saying that Iran was not developing nuclear weapons; and even though the UN's nuclear watchdog, the IAEA, found that Iran was in compliance with its obligations under the Nuclear Nonproliferation (NPT) Treaty; a preemptive US-led attack on Iran still appears likely.

And, although the western media now minimizes the prospects of another war in the region; Israel is taking the precautions that suggest that the idea is not so far-fetched. “Israel calls for shelter rooms to be set up in a bid to prepare the public for yet another war, this time, one of raining missiles.” (Press TV, Iran)

Iran's Oil Bourse Will Start Operations Feb. 17, IRNA Reports:

The Iranian Rial will be used for all transactions on the Tehran Oil Bourse, Gholamhossein Nozari said today, according to IRNA.

Iran, the second-largest producer in the Organization of Petroleum Exporting Countries, was originally expected to start its own oil-trading market in 2005.

Iran’s Oil Bourse Set to Open Sunday

Iranian Oil minister Gholamhossein Nozari has confirmed to Iranian news outlets that the long awaited oil bourse will begin trading in oil related products on Sunday February 17th. Just what “oil related products” means is not yet clear because few details have been released to the public.

What we do know is that the bourse (oil exchange) will be dealing in strictly Rial, the Iranian currency. The guess is right now that the bourse, which is to be located on the gulf island of Kish, will open by trading in “oil products” and within a short amount of time begin dealing in crude. This comes at a time when Iran’s oil output is reaching levels not seen in Iran since 1979.

The fear in the United States in some economic circles is that the opening of this bourse could lead to a further decline of the U.S. dollar. The U.S. dollar is currently the international currency in the trading of crude oil, with all oil exchanges being located in the Western world, but the Iranian oil bourse would seek to change this fact. As long as the U.S. dollar is the only international currency that can be used in purchasing oil the dollar will remain relatively stable because it will be in demand to purchase oil, if for no other reason. Therefore, countries such as Saudi Arabia are forced to accept the dollar for the sale of their crude and countries such as China and India are forced to keep the dollar on hand to purchase oil. Since the dollar has now fallen below the value of the Euro the opening of the Iranian Oil Bourse would remove one of the last remaining incentives for nations to hold onto the United States dollar. Some even go as far as to speculate this looming opening of the oil bourse being a reason for the harsh rhetoric Washington has used in the recent past towards Iran.

So, what can we expect as the final end-game?

As I’ve stated before in Dollar: Faltering Foundation of US Economic Strength, troubles for the dollar are bubbling up everywhere. Aside from the fact that our own fed has sacrificed our currency (in an attempt to save the banking/financial system), numerous nations have already de-pegged their currencies from the dollar (w/more planning to follow suit). Additionally, OPEC (as of late) has been talking about pricing oil in Euros.

This new action by IRAN, though lacking enough support to change things overnight, is a huge, long-term threat to the dollar, and is a deliberate slap in the face of US global economic power.

Personally, I don’t think the current administration will allow this problem to be passed on to the next. Rhetoric w/regard to Iran’s nuclear ambition will probably soon ratchet up again; a catalyst to action will likely be found, and bombs may be falling from the sky before November 08. However, don’t ever expect to hear (from the mainstream) that this bourse and its threat to the dollar were the real reason as to why.


Sunday, February 10, 2008

Las Vegas Tops Foreclosure List

Las Vegas tops foreclosure list:

The Las Vegas Valley is home to seven (eight if you include Henderson) of the top 10 zip codes and fifteen of the top 20 hardest hit by the housing/foreclosure meltdown.

The epicenter of foreclosures shifted to the booming city of Las Vegas at the end of 2007.

"What we're seeing is the impact of subprime mortgages coming due," said Rick Sharga, a spokesman for RealtyTrac.

These loans, which were particularly prevalent in Las Vegas, default at much higher rates than traditional, fixed-rate mortgages.

Zip code 89031 in North Las Vegas had the most foreclosures on its books as of December, with a total of 741 filings -- default notices, auction notices and bank repossessions. The nearby zip 89131 was second on the list with 665 filings, and illustrates just how the face of foreclosure has changed.

Unlike depressed Midwestern cities, the 89131 area is prosperous, with strong employment and income levels well that are above average for the state. The foreclosure problems in Las Vegas stem from the unaffordable terms of the mortgages themselves, rather than from local economic conditions.

"It's the [lending] products," said Gail Burks, president of the Nevada Fair Housing Center, "the option adjustable-rate-mortgages (ARMs) and hybrids. They're having a huge impact."

These loans feature low introductory fixed rates that reset to much higher ones, usually after two years, and adjust every six months or so after that. When they first adjust, the monthly payment on a $300,000 mortgage can jump by $600 or more, turning a barely affordable mortgage into a totally unaffordable one.

Contributing to the problem in Las Vegas was a steep run-up in home prices. In 2004 alone, the median, single-family home price in the city grew by 47 percent, and that was followed by another 14 percent rise the next year. By 2006, the median home cost $317,400, nearly 50 percent higher than the national average.

That compelled many Las Vegas homebuyers to use exotic ARMs to get the homes they wanted. Most intended to get a foot in the door, establish a good payment record for a couple of years, and then use their home's appreciation to refinance into an affordable fixed-rate loan.

But the numbers didn't pan out. "Prices in many Las Vegas communities have dropped tremendously," said Burks.

Top 20 Worst-Hit Foreclosure Zip Codes below--click here for entire top-100 list

So, LV is #1 in the Nation and it currently holds 15 of the top 20 places on the foreclosure board. Yup, pretty bad, but I think it's only going to get worse:

According to, Las Vegas inventories are beginning to rise again (27,000+) and median prices have already dropped 16% Year over Year (YoY).

Additionally, Clark County (LV) Realtytrack foreclosure listings are rapidly approaching the 40,000 mark (39,352 today).

When you take a look at recently sold homes, the picture gets even bleaker. Last month (January 08) a total of 983 homes were sold in Vegas (38% of which were properties taken back by banks after foreclosures) and less than 900 were sold in December.

After digesting the figures above, I'm certain you can see that we’re staring at a tremendous inventory overhang, that when coupled with tightened lending standards and very serious nationwide banking/credit problems, prices have only one way to go--DOWN, much further Down!

The lack of buyer volume and continued downward price pressure will prevent tens of thousands of additional homeowners, who are sitting on the cusp of foreclosure themselves, from selling and they too will end up losing all. Their foreclosed homes will add to the huge glut of bank owned homes and the bank-owned discounted sales will continue to drive prices even lower--a downward, out-of-control spiral, feeding upon itself.

As I’ve stated previously: I believe we’ll see AT LEAST a 50% haircut from 2005/6 peak prices and I don't think 60-70% off peak in some cases is too unrealistic.

Just a short 8 years ago (2000), I purchased a brand-new 3,100 SF home (5Br/4ba) with a 4-car garage on a 10K SF lot for $185,000. Less than five years later it sold for $450K--a 243% price increase. Now, if we take that same late 2004, $450K price and give it a 60% haircut for 2009-1010 we're back to ~ $180K (what my neighbor paid in late 1999).

I'm very confident we'll see these realistic prices again -- within the next couple of years. However, unemployment and inflation will be much higher and the economic sentiment of Las Vegas (and National) community will be significantly gloomier than that which we see today.

For more on the LV Housing Bubble Bust and the potential spillover effects see my December 07 post--LV Housing Bubble Update



Friday, February 08, 2008

OPEC May Drop Dollar for Euro

As I've stated previously, for over 3 decades now, U.S. Oil pricing agreements with OPEC have provided THE foundation for the US dollar's elite status in the world and oil replaced gold (after being dropped by Nixon in 1971) as the backing for the World’s Reserve Currency.

We Americans, however, were never satisfied with just having a good thing, as we wanted our cake and needed to eat it too, so we racked up enormous/un-payable debts to pay for lots of guns and butter, sold toxic securitized AAA rated garbage to our best friends, family and business partners, squandered international goodwill through inept/arrogant foreign policy, and as of late, we’ve thrown all caution and common sense into the wind and are now vigorously trying to hyperinflate our way out of this current deflationary banking/financial crisis.

Well it was great while it lasted, but the gig is nearly up.

The possibility that OPEC would make an active decision to price oil barrels in a currency other than the dollar has been bandied about, but never spoken of by anyone with any real power. That changed today, after OPEC Secretary-General Abdullah al-Badri was quoted in the Middle East Economic Digest, saying “maybe we can price the oil in the euro.”

The weakened dollar has eroded the purchasing power of the oil-rich nations at a time when consumers in those countries are also dealing with growing inflation risks, in part because several prominent nations, such as the UAE and Qatar, maintain currency pegs to the U.S. dollar. Inflation has been rising in those countries, but these countries have been lowering interest rates in order to keep pace with U.S. policy, even though they have very different fundamentals.

Eventually, those pegs are likely to be abandoned. “The days of the peg are numbered as these nations can’t continue to cut rates to 3% with inflation 4 times that rate,” says Ashraf Laidi, head of currency strategy at CMC Markets. “They will need to revalue the peg and change it to a basket of currencies.”
When this 1974 OPEC dollar pricing agreement is finally abandoned, the US Dollar's foundation as World Reserve will be yanked out from beneath it.

We in the U.S. better start preparing for a much lower standard of living because it's coming.