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Posts tagged with "Peak Wealth"

Suspension Of The Fair Value Accounting Rule By SEC And Congress Is Causing Credit Gridlock And Places One's Investments At Risk

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Credit Markets Are Drying Up And Short Term Funds Used To Pay Payrolls Are Not Available
Runs on funds are causing the death of the short term funds used by organizations to meet payroll and pay bills, as the value of short term commercial debt diminishes and the value of other debt is unknown and cannot be sold. The underlying issue here is a "crisis of confidence" which comes from the FASB accounting rules being so lax, that "fair value" can not be ascertained on the asset values, that is the value of debts, in the funds portfolios.

The current situation is that the fair value accounting rules have been suspended by the SEC.

This is something that John McCain applauds as is documented in the Newsday article McCain Says Mark To Market Suspended

Companies and funds are buying only Treasury Bills and Paper as is seen in the Capstone Report which focuses on how the Liquidity Meltdown Crisis affects colleges:

"An investment fund that serves about 1,000 colleges and private schools partially froze withdrawals this week amid the credit crunch, forcing colleges to develop new plans to pay bills.

Wachovia Bank, trustee for the $9.3 billion Short Term Fund offered by Commonfund, said Monday it was terminating the fund and establishing a process to ensure the orderly liquidation and distribution of the fund's assets. Wachovia initially told investors Monday that they could only withdraw 10 percent of their money, but that figure was increased to 34 percent by Wednesday and 37 percent by Thursday, October 2, 2008.

Commonfund, a Wilton, Conn.-based nonprofit that advises colleges and schools on money management, also said Thursday it put a 30 percent limit on withdrawals from its Intermediate Term Fund after investors in the Short Term Fund tried to withdraw money from that fund, said Keith Luke, managing director of Commonfund.

About 200 colleges and universities have about $1 billion in the intermediate fund, which is used for long-term needs, such as equipment plant purchases, he said.

"We just didn't have the liquidity in the fund to do that," Luke said. "We will relax that as soon as market conditions permit."

Partially freezing the Short Term Fund as officials prepare for liquidation prevents a run on money and protects investors, said Laura Fay, a Wachovia spokeswoman.

"It was not something we took lightly," Fay said. "In this environment, we felt this was the best way to proceed."

Some colleges are securing lines of credit because of the restriction on accessing money from the short-term account, according to Matthew Hamill, senior vice president of the National Association of College and University Business Officers. That means borrowing costs that effectively reduce their rate of return in the original investment, he said.

Hamill said he does not expect the issue to affect students and their families and noted that the crisis has eased somewhat with a greater percentage of cash allowed to be withdrawn.

"I think most institutions are feeling far more confident in the short run the fund will be there for what its needs are," Hamill said. "The remaining question on everyone's mind is exactly when the remaining balance in the account will be available."

The fund provides returns slightly above U.S. Treasury bills. About 85 percent of the fund was invested in high-quality commercial paper from blue chip companies, while the rest is in securities backed by mortgages and other assets, Luke said.

Amid the housing industry slump and turmoil affecting banks and credit markets, such investments have become increasingly unpopular as investors seek safer options like Treasury bills.

Commonfund said recently volatile markets have hurt the 15 percent to 20 percent of the Short Term Fund's portfolio held in mortgage- and asset-backed securities.

There have been no defaults in the fund's portfolio so far, Luke said.

"Credit markets have frozen, which has made trading of even the highest quality short term financial assets impossible at virtually any reasonable price," Commonfund wrote in a letter to clients Wednesday. "In light of these markets, we believe that the trustee feared that a sudden increase in redemptions could force a liquidation of securities in a frozen market and decided to take pre-emptive action."

Commonfund said it pledged $50 million of its corporate reserves in April to back the fund.

Fay said Wachovia's decision was not affected by last week's announced $2.1 billion deal for Citigroup to buy Wachovia's banking operations.

Wachovia's decision to slowly liquidate the fund is designed to prevent a rush by investors. When a fund sees such a rush, fund managers must sell assets — typically at a loss when it must be done quickly, and especially amid the recent market turmoil.

A slow liquidation helps protect investor returns and ensure each investor would be treated equally.

A rescue package approved by the Senate late Wednesday would let the government spend billions of dollars to buy bad mortgage-related securities and other devalued assets held by troubled financial institutions. If successful, advocates say, that would allow frozen credit to begin flowing again and prevent a serious recession.

By the end of the year, investors in the Short Term Fund will be able to withdraw at least 57 percent of their money, Luke said. Asked if investors will ultimately get all their money back, Luke said, "We certainly expect that."

Commonfund is working with the colleges and schools to help them find alternative sources of financing, Luke said.

"We feel terrible for them," Luke said. "We want to help them. We're working very hard to do so."

Bethany College — a Lutheran school in Lindsborg, Kan., with 600 students and a $12 million budget — has $700,000 invested in the fund.

"Obviously we weren't planning on withdrawing all at once," said Aubrey Streit, a spokeswoman. "We're just re-evaluating our plan for how we will work with the cash flow over the course of the next academic year."

Bethany College is not in a state of panic, Streit said, but she noted that the investment was a significant part of its budget.

"It wasn't something we expected," Streit said. "It really makes it real to see the financial impact coming here."

Grinnell College in Iowa had about $4.8 million in the fund, but was able to withdraw 34 percent, said Russell Osgood, the college's president. With a $1.5 billion endowment, he was not worried.

AP business writer Mark Jewell in Boston contributed to this report. Source: AP News

One Response to “Liquidity crisis for colleges?”
Christopherson Says: October 2nd, 2008 at 7:14 pm
I’ve already heard from numerous sources that UA will be a lot harder to be accepted into now that they’re at an all time high of 27,000+ students. I imagine the economy crisis is only playing into the university officials’ plan.

The Bailout Bill Has Gone Back To The House Providing Tax Breaks, An Increase In FDIC Insurance, And A Restatement Encouraging Suspending Fair Value Accounting Provided
James Rowley and Nicholas Johnston Bailout Bill Sent Back to House After Senate Passage (Update2) report that "The Senate also sweetened the (bailout) measure for Republicans by authorizing the government's purchase of troubled assets with a $149 billion package of tax breaks. They would spare 24 million households from a $62 billion alternative minimum tax and extend $17 billion in benefits to companies that produce alternative energy.

And added to the rescue plan this week is a temporary increase in the limit on federal deposit insurance to $250,000 from $100,000 aimed at discouraging people from pulling their money out of banks.

The Senate bill also reiterates the U.S. Securities and Exchange Commission's authority to suspend an accounting rule that bankers and other corporate executives say exacerbates their troubles; as indicated in the Elizabeth Williamsonand Kara Scannell Wall Street Journal article Momentum Gathers to Ease Mark-to-Market Accounting Rule

The so-called fair-value standard requires companies to review assets and report losses if their values decline. Lawmakers, the American Bankers Association and companies including American International Group Inc. have urged the SEC to suspend or ease the rule, saying it forces firms to report deeper losses than needed on assets such as subprime mortgages.

Jesse Westbrook of Bloomberg in SEC, FASB Resist Calls to Suspend Fair-Value Rules (Update2) reports that "The U.S. Securities and Exchange Commission probably will resist calls to suspend the fair-value accounting rules that some members of Congress blame for exacerbating the global financial crisis, people familiar with the matter said.

The SEC and Financial Accounting Standards Board today issued ``clarifications'' on how banks should interpret existing rules requiring them to review assets each quarter and report losses if values decline. A moratorium isn't being considered, said the people, who declined to be identified because the plan hasn't been completed.

Congressmen, banking lobbyists and companies including American International Group Inc. have urged the SEC to suspend fair-value accounting, saying it forces firms to report losses they never expect to incur. Federal Reserve Chairman Ben S. Bernanke and other proponents say removing the rule would erode confidence that firms are owning up to losses.

``In the past couple of weeks, fair-value accounting has been under attack,'' JPMorgan Chase & Co. analyst Dane Mott wrote in a report today. ``Blaming fair-value accounting for the credit crisis is a lot like going to a doctor for a diagnosis and then blaming him for telling you that you are sick.''

SEC spokesman John Nester declined to comment. FASB spokesman Neal McGarity didn't return a phone call seeking comment.

House Rejection

Representative Todd Tiahrt, a Kansas Republican, said the House probably would have approved a $700 billion bailout of financial companies yesterday had the legislation included a suspension of fair value accounting. The House rejected the measure 228-205.

It would have passed ``easily'' if the rules had been suspended, Tiahrt, who opposed the legislation, said today in a Bloomberg Television interview.

Bernanke said in Sept. 23 testimony before the Senate Banking Committee that if regulators repeal the rules, ``nobody knows what the true mark-to-market price is.''

Fair value rules require companies to determine how much assets are worth based on what they could expect to sell them for on the open market.

``Suspending the mark-to-market prices is the most irresponsible thing to do,'' said Diane Garnick, who helps oversee more than $500 billion as an investment strategist at Invesco Ltd. in New York. ``Accounting does not make corporate earnings or balance sheets more volatile. Accounting just increases the transparency of volatility in earnings.''

`Unrealistic Prices'

Anne Canfield, executive vice president of the Consumer Mortgage Coalition, counters that businesses have been forced to ``mark down their assets to unrealistic fire-sale prices,'' because trading has dried up. Canfield, whose group represents mortgage lenders, urged the SEC to suspend fair-value rules ``immediately'' in a Sept. 29 letter to the agency.

The SEC and FASB, in today's statement, encouraged companies to rely more on their own judgments, such as expected cash flows, in determining the current value of assets that aren't trading. The regulators also said price quotes provided by brokers when markets are frozen may not be the most reliable way to determine how much securities are worth.

Norwalk, Connecticut-based FASB, which writes U.S. accounting rules, is preparing ``additional interpretive guidance on fair-value measurements'' to be released this week, the SEC said. FASB will discuss fair-value accounting at its board meeting tomorrow.

Bankers Association

The American Bankers Association, a trade group representing lenders that has lobbied the SEC over fair value accounting, praised the agency's clarifications, saying they will ``help auditors more accurately price assets,'' according to a statement released today.

The collapse of the subprime-mortgage market has contributed to more than $500 billion of losses and writedowns at global financial companies. Treasury Secretary Henry Paulson is seeking authority from Congress to ease the crisis by buying mortgage-securities and other assets from banks.

U.S. Senate leaders and President George W. Bush vowed today to revive the $700 billion financial-rescue plan after the House rejected the legislation.

House Plans Second Vote On $700 Billion Bailout
Friday October 3, 6:40 am ET, Julie Hirschfeld Davis of the Associated Press writes that converts in the House are "reluctantly embracing" $700 billion bailout ahead of today's make-or-break 2nd vote.

Black lawmakers said personal calls from Democratic presidential nominee Barack Obama helped switch them from "no" to "yes," as Republicans and Democrats alike said appeals from credit-starved small businessmen and the Senate's addition of $110 billion in tax breaks and other sweeteners had persuaded them to drop their opposition.

Rep. John Lewis, D-Ga., told a closed-door meeting of House Democrats that he would support the bill after speaking with Obama about it.

Congressional leaders "worked over" wayward colleagues wherever they could find them.

Rep. Bobby Rush, D-Ill., also said Obama was asking him to reconsider his vote. "I'm seriously listening," Rush said

The Investment Application
The SEC has stated that the fair value accounting rules have been suspended. And the bailout legislation is likely to be passed with a statement to the SEC that it suspend fair value accounting, which is redundant given that it has already suspended the rules.

Yet, the suspension of fair value is modern day Enron accounting, and is obscuring the true market value of their assets in fund values and in debt instruments, intensifying the credit crisis day-by-day. Liquidity is freezing up. This means there is no liquidity to grease the wheels of the economy.

There is coming ever increasing credit gridlock where companies will be unable to meet payroll and pay debt as it comes due, as the funds they rely on do not honor redemptions.

When the legislation passes, and is signed into law by the President, then the US government will be stuck with buying assets that are market to fantasy. And I can assure you that the Federal Reserve is going to be buying assets primarily from chrony organizations, such as JP Morgan and Morgan Stanley, and from only those organizations which if they fail would hurt JPM and MS.

What this means is that the assets, that is the debts, on the books of massive numbers of banks and others, will really be reinforced as worthless.

The passage of the legislation will mean a write down of commercial debt instruments across the board with the longer out, getting a greater marketplace haircut.

Debt ETFs, such as LQD, HYG, CFT and EMB will continue to loose value; and the principal value of the tax free municipal bond mutual funds like USSTX, will continue to fall, as interest rates rise. And the municipal bond ETFs such as MUB and TFI will continually go lower as well.

The suspension of fair value accounting means an ever increasing flight of capital out of the municipal bond market, and thus will soon cause a shut out of municipalities from the credit markets.

The suspension of fair value accounting means companies will find no buyers of corporate debt; and thus, a closure of lending markets.

We are quickly moving from a situation where the US Treasury Notes and Paper is desirable, to a situation where only the US Government Debt will be honored, that is bought and sold!

In other words, only US government debt will be held as valuable, because fair value accounting rules have been suspended by both the SEC and by congressional mandate.

I relate that while Regional Banks, IAT, are currently up 22% since the US Dollar stock rally began, July 14, 2008, when the yen carry traders, sold oil, USO, and commodities, RJI, to go long the banks, the facility of TARP provided under the Emergency Economic Stabilization Act of 2008, that is EESA, is unlikely to be of much help to most regional banks. The authority and facilities given to the Federal Reserve Chairman by the Paulson-Bush-Pelosi bailout legislation provide a rescue of derivative laden and threatend JPMorgan, Citigroup, Bank of America and Morgan Stanley, and not of the community and smaller banks.

If one is invested in these, it's best to sell out now of all Regional Banks, as they will be falling in value once the legislation is passed.

The 3 month on going Yahoo Finance chart of IAT, compared to ITB, and IYR, shows the 22% rise. Here is the chart showing the 22%.

Yes, pull out as my perspective is much the same as that of Joshua Crown in The Accounting Rule You Should Care About where he relates: A change of course!

Tuesday afternoon, the SEC and FASB seemed to change course on the rule, as they published new guidance to firms. The two organizations said when the market for a security disappears, it is now allowable to arrive at a value using "estimates that incorporate current market participant expectations of future cash flows, and include appropriate risk premiums, is acceptable."

In plain English, banks may not be forced to take huge writedowns on investments that lost all their value. But the guidance is just that: guidance. The SEC and FASB suggested that more concrete rule changes could come later.

While the possible end of mark-to-market might please critics of the rule, it doesn't satisfy everybody.

Some financial experts argue that even though banks and Wall Street firms may be able to make their balance sheets look better if the rule changes, these companies will be less attractive to investors because there isn't as much information about their true financial condition.

"The garbage is on the books and no one wants to admit the original error of purchasing this class of assets," said Barry Ritholtz, CEO of Fusion IQ, a research firm.

Ritholtz said mark-to-market accounting forces banks to honestly disclose what they own and how much those investments are worth. Changing the rule would make it tougher to come up with a bank's real value.

"I would advise our clients and the investing public that owning any financials that failed to disclose their holdings accurately is no longer an investment. It is pure speculation, with more in common to spinning a roulette wheel," he said.

Gold Is The Safe Haven
I believe a run on stock brokerages is coming soon; and I suggest that one take one's money out of brokerage accounts, and that one buy gold, even though gold can easily fall from its current $840 to $825, $800 or $775, with a falling EURJPY.

And the gold ETF, GLD, could very easily fall to $77.50.

While bank accounts will have higher FDIC limits, I want something that is tangible, that I can secure, that I can personally own and have a large degee of personal control over.

I recommend diversification of investment in gold in four locations immediately because of financial system instability and lack of liquidity: the gold ETF, GLD, directly through streetTRACKS Gold Trust, and not in a brokerage account; two BullionVault, three GoldMoney; and four a limited number of gold coins.

I am simply a blogger who communicates what I see as an investment demand for gold; I suggest that one consult with a licensed investment professional before making any investment decisions.

Helpful Interactive Charts For Gold
The Yahoo Finance ongoing chart of GLD relative to the EUR/JPY and the USD/JPY, provides fascinating insights into the interplay of gold and the two major currency pairs.

Gold, $GOLD.

The gold ETF, GLD.

The US Dollar, $USD.

US Treasuries, TLT

The Ten Year US Government Note, $TNX

The on going monthly MSN Finance chart of the gold ETF, compared to world stocks, EFA, and US Stocks, VTI, and US Treasuries, TLT

The ongoing five day Yahoo Finance chart of gold, GLD, relative to the US Dollar ETF, UUP, and the Euro, FXE, and oil, USO

The on going five day Yahoo Finance chart of the gold ETF, GLD, compared to FXE, EFA, and EEB

The on going five day Yahoo Finance chart of the gold ETF, GLD, compared to IWM, and SPY

The on going five day Yahoo Finance chart of the gold ETF, GLD, compared to FXE, USO, and RJI

The ongoing ten day MSN Finance chart of EUM, compared to TWM, SDK, and SFK

The the ongoing five day Yahoo Finance chart of EUM, compared to TWM, SDK, and SFK

The ongoing five day Yahoo Finance chart of the yen, compared to gold and the world's major currencies

Gold relative to world stocks: GLD:EFA

Gold relative to US Stocks: GLD:VTI

Gold relative to the euro: GLD:FXE

Gold relative to world currencies: GLD:DBV

Gold relative to oil: GLD:USO

Suggested Reading And Things To Reflect On
LIBOR Rates Pushing World To Hyper-inflation? Is disregard for fair value rules of accounting going to create massive hyperinflation?

The Ted Spread as of the writing of this article it has gone into uncharted territory at 3.83, that may be a new high; this is like throwing a wrench into a working machine; all I can relate is that the global financial system is going to come to a screeching break down very, very soon.

KeNo's Housing And Economic Portal provides a section of various state, municipality and small businesses being hurt by the credit crunch.

The SEC May Get New Authority Over Fair Value Accounting Two little noticed provisions are Sections 132 and 133, which represent a significant and potentially far-reaching intrusion by Congress into the process by which accounting principles are formulated and implemented. Section 132 gives the SEC the authority to “suspend … Statement Number 157 of the Financial Accounting Standards Board, FASB.

Stop Enronization Of Banking The current bailout legislation does not instill or create trust in wall street and banking.

Goldman Is Getting The Best Of The Credit Crisis Goldman Sachs opponents have been vanquished and bad bets wiped away. Given that its charter has been changed to the status of a bank holding company, it will be the last bank standing.

A Liquidity Event Seems Imminent

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Introduction
There are a number of threats to financial stability that I have addressed in my blog. These include treasury repo fails in interbank lending, the failure of the insurance company AIG, the level two assets and level three assets at banks and investment bankers, the debt carried off balance sheets at a number of organizations, commercial lending gridlock where companies seeking to refinance debt as it comes due are unable to do so and go out of business, and the dearth of liquidity caused by the impact of FASB 141.

I am reporting that a liquidity vacuum has formed and is intensifying, and that as a result a liquidity event may occur where the world's financial system seizes up and break down.

A Liquidity Event appears imminent as liquidity has simply evaporated.
The Libor is a measure of liquidity, and it rose sharply today suggesting that liquidity has simply vanished. Gavin Finch of Bloomberg reports on September 16, 2008 in article Overnight Money-Market Rate for Dollars Doubles, BBA Says that the cost of borrowing in dollars overnight more than doubled to 6.44 percent, its biggest jump, according to the British Bankers' Association. The London interbank offered rate, or Libor, increased 333 basis points from yesterday, the BBA said today.

And today the Ted Spread, another metric of liquidity, closed at 2.17 up from just over 1% last week. Calculated Risk in September 15, 2008 article Credit Crisis: The Fourth Wave, relates that this is close to the highs reached in August 2007, late 2007 and in the spring of 2008, the three previous waves of the credit crisis. Note: the TED spread is the difference between the three month T-bill and the LIBOR interest rate.

Sam Mamudiin Market Watch article Money Market Giant Freezes Redemptions reports that "One of the first and largest money market funds has put a seven-day freeze on redemptions after the net asset value of its shares fell below $1. Primary Fund, RFIXX ... RFIXX, a $62 billion fund managed by money market fund inventor, The Reserve, said Tuesday afternoon that its $785 million holding of Lehman Brothers Holdings debt has been valued at zero. As of 4 p.m., the value of the fund's share is 97 cents. The Reserve said that redemption requests received before 3 p.m. Tuesday will be paid out at $1 a share.

Catherine Belton, Charles Clover, and Rachel Morarjee of FT. com report September 16, 2008 Russian Stock Market Crashes, Russia Halts Trading After 17% Share Price Fall.

Gavin Finch and Kim-Mai Cutler of Bloomberg in September 16, 2008 article Money-Market Rates Double Amid Global Credit Seizure relatesThe cost of borrowing in dollars overnight more than doubled to the highest since 2001 as the collapse of Lehman Brothers Holdings Inc. and credit downgrades of American International Group Inc. led banks to hoard cash.

The London interbank offered rate, or Libor, that financial institutions charge each other to borrow soared 3.33 percentage points to 6.44 percent today, its biggest jump in at least seven years, according to the British Bankers' Association. The rate was as low as 2.07 percent in June.

Banks are driving up short-term lending rates on concern that AIG, the biggest U.S. insurer, will follow Lehman into bankruptcy and leave financial institutions with losses on $441 billion of credit derivatives. Central banks around the world pumped more than $210 billion into the financial system as they sought to alleviate the credit-market seizure.

``It's fear,'' said Imke Jersch, a senior money-market trader in Hanover at Norddeutsche Landesbank Girozentrale AG, Germany's fourth-biggest state-owned bank. ``You don't know who has exposure and who might not be getting their money anymore. It's a domino effect. You never know who might fall next.''

The yield on the 10-year Treasury note fell to the lowest level in five years as investors sought the safety of government debt. Average yields on overnight U.S. commercial paper backed by assets such as credit cards and car loans jumped 54 basis points to 3.45 percent, the highest since March.

``I have never seen anything remotely like this. The money market was typically the one thing that always worked,'' said Luca Jellinek, head of interest-rate strategy in London at Royal Bank of Scotland Group Plc. ``It's the cardiovascular system of the financial body. When this happens, it's like a heart attack.''

The Fed added $50 billion in temporary reserves to the banking system today through overnight repurchase agreements, or repos. The European Central Bank offered 70 billion euros ($100 billion) in a one-day refinancing operation and the Bank of England injected 20 billion pounds ($36 billion). The Bank of Japan added 2.5 trillion yen ($24 billion) and the Reserve Bank of Australia injected A$1.85 billion ($1.5 billion)".

My analysis is that a Liquidity Event is very likely imminent, where the financial system, lacking liquidity simply freezes up and breaks down.

The Federal Reserve moved to prevent a disorderly failure of AIG, but has not addressed the risk to financial stability posed by Washington Mutual.
Associated Press reports on September 16, 2008, in Government Announces $85 Billion Loan To Save AIG that "In a bid to save financial markets and economy from further turmoil, the U.S. government agreed to provide an $85 billion emergency loan to rescue the huge insurer AIG. The Federal Reserve said in a statement it determined that a disorderly failure of AIG could hurt the already delicate financial markets and the economy."

While the Fed acted after market close, as referenced in their announcement, to prevent a disorderly failure of AIG, it has done nothing as of yet, to address the potential of a liquidity event, and financial system breakdown, associated with the counterparty risk associated with the credit default swaps and depletion of capital at Washington Mutual, WM.

Liquidity continued to evaporate today as the Counterparty Risk Index went critical
FT.com in September 16, 2008 article Counterparty Risk Goes Critical reports that counterparty risk in the market for credit default swaps, as measured by the CDR Counterparty Risk Index, CRI, hit an all-time high on Tuesday as traders reacted to Lehman Brothers’ bankruptcy and the unknown future of AIG.

The CRI hit 389.33bp this morning, compared with its previous record wide of 250bps during the Bear Stearns-induced market panic.

Washington Mutual, the home loan lender to the low income, sees share price fall and credit default swaps rise as the liquidity crisis unfolds
The MSN Finance chart of Washington Mutual from August 8, 2008 to September 16, 2008, shows that WaMu has lost 50% of its stock market value ... Chart of WM from 08-08-08 to 09-16-2008

A part of the force feeding the intensifying liquidity vacuum as well as WaMu's share price fall is the organization's portfolio of Option ARMs
Bob Ivry and Linda Shen in Bloomberg article Washington Mutual Hobbled By Increasing Defaults on Option ARMs reports on September 15, 2008 that Washington Mutual Inc., the thrift that lost 92 percent of market value in the past year, is being dragged down by a mortgage product once hailed by former Chief Executive Officer Kerry Killinger as a boost to profit.

As many as 45 percent of borrowers with payment-option adjustable-rate mortgages issued from 2004 to 2007 and bundled into securities may default, according to Fitch Ratings analysts Roelof Slump and Stefan Hilts. Washington Mutual held $52.9 billion of the mortgages, also called option ARMs or negative amortization loans, on its books in the second quarter, with defaults doubling to $3.2 billion from the end of 2007, according to a filing with the U.S. Securities and Exchange Commission.

``You look at all the major players in the option ARM market and they're all on their knees,'' said Andrew Laperriere, Washington-based managing director at the International Strategy & Investment Group research firm. ``These companies have changed their stance on these loans dramatically. They were defending them as late as a year ago. They said these loans would be fine.''

Two of the top five option ARM lenders, according to a ranking by industry newsletter Inside Mortgage Finance, are no longer in business and the other three have ousted their CEOs and seen their market value erode in the worst housing recession since the 1930s. Seattle-based Washington Mutual, the largest U.S. savings and loan, fired Killinger on Sept. 8 after 18 years as CEO, citing his failure to stem losses from home mortgages.

Payment Spikes

Option ARMs allow borrowers to skip part of their payment and add that sum to their principal. Monthly payments increase after five years or once the loan balance reaches a predetermined limit, usually 110 percent to 125 percent. Introductory interest rates can be as low as 1 percent.

For the average option ARM borrower, payments will rise 63 percent, or an additional $1,053 a month, when their rates reset, according to a Sept. 2 report by New York-based Fitch.

Because typical option ARM borrowers make less than the full payment each month, according to Fitch, they don't build equity in their homes. When house prices fall, they owe more than their home is worth. That leaves lenders facing losses if the loan defaults and they foreclose.

About 83 percent of the option ARMs issued from 2004 to 2007 were underwritten without full documentation of borrowers' incomes, Fitch said.

``For most borrowers, once their loan resets, there's no place for them to go,'' said Hilts of Fitch. ``A high percentage of them don't have equity, so they can't refinance, and they don't have the income to withstand the payment shock.''

Four percent of Washington Mutual's option ARM portfolio probably will reset in the second half of this year and 13 percent, or $7.1 billion, will reset in 2009, according to the SEC filing.

Home Price Declines

With home prices falling 18.8 percent nationally from their peak in 2006, according to the S&P/Case-Shiller Home Price Index, almost one-third of borrowers who bought their homes in the past five years now owe more on their mortgages than their properties are worth, real estate valuation Web site Zillow.com said.

Washington Mutual issued half its option ARMs in California, according to the thrift's second-quarter regulatory filing. One in 130 households there were in some stage of foreclosure in August, making it the state with the second-highest rate, data compiled by Irvine, California-based RealtyTrac Inc. show. Nevada is No. 1.

The thrift made 13 percent of its option ARMs in Florida, the state with the fourth-highest foreclosure rate, according to RealtyTrac.

``It's not the product, ultimately, it was how it was administered,'' said Gary Townsend, chief executive officer of Hill-Townsend Capital LLC in Chevy Chase, Maryland, referring to Washington Mutual.

`Nice Gains'

Killinger said in a July 22, 2004, conference call with analysts that option ARMs were a product that would boost Washington Mutual's profit margin.

``We will emphasize origination of higher margin product such as option ARMs and we will emphasize originations through our retail and wholesale channels,'' Killinger said.

Six months later, Chief Financial Officer Thomas Casey told analysts that the lender would ``push that option ARM as hard as we can.''

``We believe that the option ARM is a differentiating product for us, and we're continuing to see nice gains on that compared to some of the other products that are out on the market right now so that will be a continued focus for us,'' Casey said Jan. 20, 2005.

Killinger's departure from Washington Mutual came as the thrift signed a memorandum of understanding with its regulator requiring the bank to improve its risk management.

Washington Mutual was the second-biggest provider of option ARMs in the second quarter, behind Charlotte, North Carolina-based Wachovia Corp., which held $122 billion of the loans, according to a company filing.

Countrywide Financial Corp., formerly the biggest U.S. mortgage lender, had $25.4 billion of the loans on its books in the second quarter. Bank of America Corp. bought the company on July 1. The Calabasas, California-based lender had the third- highest amount of option ARMs.

Downey Financial Corp., a savings and loan based in Newport Beach, California, held $6.9 billion at the end of the second quarter, according to a filing, making it the fourth-largest U.S. option ARM lender, according to Bethesda, Maryland-based Inside Mortgage Finance.

Downey, with second-quarter assets of $12.6 billion, has lost 95 percent of its market value since the beginning of the year. It replaced its CEO, Daniel Rosenthal, on July 24.

Seized by Regulator

In July, IndyMac Bancorp Inc., the Pasadena, California-based lender that began as a spinoff from Countrywide, became the third- largest bank in U.S. history to be seized by its regulator, the Federal Deposit Insurance Corp., after depositors withdrew more than $1.3 billion in 11 business days. IndyMac held $3.5 billion of option ARMs, the fifth-largest amount.

Wachovia, the fourth-largest U.S. bank, lost 71 percent of market value in the past year. In July, the bank ousted CEO Kennedy Thompson, whose $24 billion purchase of Golden West Financial Corp. in 2006 came with a portfolio of option ARMS.

Robert Steel, the former Treasury official who replaced Thompson as Wachovia's CEO, said at a Sept. 9 investors conference in New York that he approached the option ARMs ``as if we were a distressed investment manager.''

Brock Davis, a broker with U.S. Express Mortgage Corp. in Las Vegas, calls option ARMs ``neutron loans'' because ``three years later the house is still there and the people are gone.''

Mike Mish Sheldon in recent article Thoughts On Credit Default Swaps relates that Credit Default Swaps, CDS, on Lehman, LEH, and Washington Mutual, WM, were soaring on Tuesday September 9, 2008. This should not be surprising given that both stocks were hammered today Wednesday September 10, 2008.

OptionArmageddon in article WaMu (& BKUNA, & DSL) On The Brink? reports on September 8, 2008 that "Basically, OTS just put WaMu on notice. Remember, WaMu has about $120 billion worth of toxic mortgage assets sitting on its balance sheet. Subprime, Option ARMs, Home Equity Loans, etc. Taken together, these securities are likely worth 50 cents on the dollar. It’s not easy deciphering their balance sheet, but WaMu probably has in the neighborhood of $40 billion of capital backstopping these losses. So if they actually write down their assets to reflect their current value, it could wipe them out.

Is it any wonder WaMu is desperate for capital?

With $140 billion in insured deposits, any prospect that WaMu might fail has to be stressing regulators, especially the FDIC. Remember, FDIC has only $45 billion in its reserve fund, meaning that a failure the size of WaMu could come close to wiping THEM out."

Just one of many causes for the liquidity vacuum, is the inability of banks and investment bankers, such as WaMu to obtain capital as documented by Jonathan Keehner and Linda Shen, in September 11, 20008, Bloomberg article, WaMu May Lose Suitors on Accounting Rule; Stock Plummets 30%: "At least three potential acquirers ended negotiations to buy either Seattle-based WaMu or Cleveland's National City Corp., the bankers said. One sticking point, they say: a rule change that will force acquirers to compute a target's assets at market prices instead of deriving values from measures including the purchase price. WaMu is in "a tough place," said Jaime Peters, an analyst at Morningstar Inc. in Chicago. "The revised rules will create additional hurdles for WaMu, and there are already plenty of hurdles."

Sara Lepo of the Associated Press and Orange County Register reports that Washington Mutual Removes CEO Kerry Killinger on September 8, 2008. Washington Mutual, the nation’s largest thrift, replaced Kerry Killinger as chief executive on Monday, as it continues to grapple with large losses from sour loans, reports the Associated Press. Killinger is being replaced by Alan H. Fishman, the former president and chief operating officer of Sovereign Bank and president and CEO of Independence Community Bank.

And WaMu said it has entered into a memorandum of understanding with its regulator, the Office of Thrift Supervision. WaMu has committed to provide the OTS with an updated, multiyear business plan, and does not have to raise capital or increase liquidity.

The New York Times, on May 20, 1999 in article Washington Mutual to Buy California Mortgage Lender reported that: "Washington Mutual, a financial services company, said yesterday that it had agreed to acquire the Long Beach Financial Corporation, a California mortgage lender, for $350.4 million, or $15.50 a share, expanding its presence in the residential mortgage market. Washington Mutual, based in Seattle, has 2,000 offices and assets of $174 billion. Long Beach Financial, known as a subprime lender, makes mortgage loans to customers with spotty credit records, usually at high interest rates, then packages its loans and sells them to institutional investors. Shares of Long Beach jumped 16.8 percent, gaining $2.0625, to $14.375. Shares of Washington Mutual climbed 75 cents, to $39.75."

Washington Mutual has been a consistent provider of home loans to the low income
Bakersfieldbubble on May 3, 2007 reported in article $14,000 Per Year Field Worker Buys $720,000 Home that: "Despite making only $14,000 a year, strawberry picker Alberto Ramirez managed to buy his own slice of the American Dream. But his Hollister home came with a hefty price tag - $720,000.

A year and a half later, Ramirez has defaulted on his loan, and he's hoping to sell the house before it's repossessed. And according to many housing advocates and civil rights groups, Ramirez is not alone. As mortgage foreclosures rise, many minorities are suffering.

Brown said the language barrier (Ramirez, a native Spanish speaker, is not fluent in English, and spoke to the Free Lance through a translator) can also play a big role.

"When you go into Washington Mutual ... you can't always get someone to speak your language," she said.

"The real estate boom covered a multitude of sins," Simmons said. "Once the market started depreciating, the rug was pulled back to show the rot underneath."

Investment Application
I have to relate that I am a blogger who holds forth the Liquidation Thesis and one who encourages investing in gold. I am not a licensed investment professional and do not take any compensation for things related in this blog. I am currently invested long in the ETF SKF and have a few small gold coins. I always suggest that one consult a licensed investment professional before making any investment decision.

Herb Greenberg in article How To Keep Your Investments Safe suggests the use of a trust account for investing.

I recommend that one buy gold immediately at GoldMoney and BullionVault as well as a limited number of Krugerands from Kitco.com.

Be advised that currently the price of gold, GLD, is a function of oil, USO. The gold ETF, GLD, traded yesterday at 77.56; it is currently trading at 76.62

The Yahoo Finance ongoing chart of oil, USO, relative to gold, GLD shows that oil has fallen twelve percent in the last two days to 74.19.

I fully expect gold to move lower in price; gold traded yesterday at $786: today it is trading at $780; strong support for gold is found lower at $750; 700 and $675.

The one year chart of Gold, GLD, compared to natural gas, GAZ, and silver, SLV, as well as Silver Standard Resources Inc, SSRI, and Barrick Gold, ABX, proves how speculative the latter four have been -- they got run up by the yen carry traders using the Bank of Japan lending window, and investors who went along believing these had real value got burned very badly. Their fall shows the absolute chaos that has come to the world from using the neoliberal Milton Friedman floating exchange currency system.

Keywords
mortgage backed securities, financialization, securitization, mortgage loans, cdo, cdos, liquidity crisis, liquidity evaporation, liquidity vacuum, evaporation of liquidity, counterparty risk, implosion, systemic risk event, financial system meltdown, financial system breakdown, ofheo, wamu, wm, real estate loans, financial stabililty threatened, means, meaning, implosion,

Liquidity Evaporation Is Fueling The Current Investment Crisis

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Liquidity Simply Evaporates
The Citigroup, C, CDO bust of October 8, 2007 produced a credit crisis which has morphed into credit write downs resulting now in a liquidity crisis characterized by 'liquidity evaporation'.

Barry Grey in WSWS article The Wall Street Crisis And The Failure Of American Capitalism relates that "The sudden demise of Lehman Brothers and Merrill Lynch has removed a huge amount of liquidity from the economy, as paper values built up over decades of speculation come crashing down. This is capital that is needed to finance business operations, and its elimination will inevitably depress economic activity, fueling unemployment and recession, further undermining home prices and consumer spending, and further weakening the balance sheets of already financially shaken banks".

Professor Kevin Depew in article It Was Fun While It Lasted relates: "Some will argue that by adding $25 billion to the now $200 billion Treasury lending facility, accepting equities as collateral and by cutting short term interest rates, which the FOMC will almost certainly do tomorrow, the Fed is making more credit available, but that credit is being absorbed by the financial system so quickly that the net result is a still continuing credit contraction".

Yes credit is being destroyed far faster than the Fed is monetizing.

Banks Hoard Cash
The Financial Ninja in article Fed Definitely Losing Control Fed Funds Rate Hits 6% relates that "Money-market rates have more than doubled amid the global credit seizure and the cost of borrowing in dollars overnight more than doubled as banks hoarded cash amid speculation more financial institutions will fail.

The overnight dollar rate soared 333 basis points to 6.44 percent today, its biggest jump, according to the British Bankers' Association. Rates climbed yesterday after Lehman Brothers Holdings Inc. succumbed to mounting credit-market losses and filed for bankruptcy.

The markets now face the very real possibility of a disorderly liquidation. That’s just a fancy way of saying meltdown.

The European Central Bank, Bank of England and Swiss National Bank offered financial institutions emergency cash for a second day today as the credit rout threatened to derail markets.

The Frankfurt-based ECB offered 70 billion euros ($100 billion) in a one-day refinancing operation. Fifty-six banks bid for a total of 102.5 billion euros. The Bank of England injected 20 billion pounds ($36 billion). The SNB also said it will offer overnight cash.

I am reporting that the ongoing Yahoo Finance chart of ^TNX, the interest rate on the 10 Year US Government Note, shows a massive down, in this keystone financial instrument, to 3.49 at end of day.

This has caused a dark cloud covering harami to form in the government bond ETFs, SHY, and in TLT ... SHY and TLT.

A Cultural, Political, Economic and Investment Sea Change Is Underway
It's as Mr. Grey relates: "A sea change is unfolding in the US and world economy that portends a catastrophe of dimensions not seen since the Great Depression of the 1930s".

And he continues "The fall of icons of American capitalism such as 158-year-old Lehman Brothers and 94-year-old Merrill Lynch can only lead to the further discrediting of the “free market” ideology of the US ruling elite, as well as its political and economic system. The spectacle of giants of capitalism drowning in debt piled up over decades of reckless speculation must inevitably discredit the social class—the American capitalist class—which is responsible for the debacle."

Yes the neoliberal Milton Friedman floating exchange currency principles as well as the University of Chicago Professor's free market ideology underpin capitalism and investment.

The only currency that is floating is the Yen, FXY, it is rising while the others are sinking. We witnessed Peak Dollar on September 11, 2008. The British pound, FXB, is leading the way down, with the commodity currencies such as the Euro, FXE, the Canadian Dollar, FXC, and the Australian Dollar, FXA, leading other currencies down into The Abyss. The former high yielding currencies, those in the most rewarding carry trades such as the AUD/JPY and the EUR/JPY, are now the leaders in causing disinvestment from the emerging markets, EEM, and china, FXI as hedge fund investors and those with the 0.5% Bank of Japan loans are scurrying to buy yen, FXY, and repay their loans.

Those short the markets with EEV, FXP, and DEE are doing quite well. I personally am invested in SKF, and hope to see some financial gain soon. The few gold coins that I own have appreciated from their purchase price. If someone does invest, I suggest that one use a trust account and not a brokerage account.

Capitalism And Traditional Investment Are Dead, Dead and Dead
I recently wrote that capitalism died with the Federal Reserve assisted buyout JP Morgan buyout of Bear Sterns.

Dr. James Glenn in Financial Sense article wrote that the Federal Reserve and the US Treasury crossed the Rubicon with their new initiatives: the result is that state corporatism, that is state corporate rule is now firmly entrenched and will intensify.

Derivatives Are Indeed Weapons Of Mass Financial Destruction
Nils Pratley in Guardian article Wall Street Crisis: "Is this the death knell for derivatives? writes that on page 62 of last year's accounts, under the heading "off balance sheet arrangements" Lehman had derivative contracts with a face value of $738bn."

Lehman isn't the only other company with counterparty risk associated with derivatives. Eliane Meinel Supkis writing in article Bankers Refuse To Create Central Market For Derivative Swaps relates the Ari Levy Bloomberg article WaMu Rating Lowered to Junk by S&P on Mortgage Losses. Should Washington Mutual, WM, fail, it would overwhelm the ability of the FDIC to cover its debts.

And Ms. Supkis relates the Bloomberg article, AIG Sparks Bond Risk Surge On $441 Billion Counterparty Concern that American International Group Inc, AIG, triggered a surge in the cost of protecting corporate bonds from default on investor concern the company may face demands for more cash to back $441 billion of credit derivatives it sold. AIG, which raised $20.3 billion in May by selling debt and equity, may face calls for as much as $17 billion in new collateral after Standard & Poor's and Moody's Investors Service cut the company's credit ratings yesterday, UBS AG analysts said today. The downgrade came as the biggest U.S. insurer by assets sought $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co. to replenish capital, according to two people familiar with the situation. ``If AIG spirals in the same way as Lehman, the ramifications will be much more substantial,'' said Jim Reid, head of fundamental credit strategy at Deutsche Bank AG in London. ``The rating downgrades have accelerated the need for an imminent response.''

Mike Mish Sheldon in article The Crime In Buying AIG Time relates: "Let's tie it all together.

New York Gov. David A. Paterson (D) is going to violate regulations and allow AIG to borrow up to $20 billion from its subsidiaries. Timothy Geithner, president of the Federal Reserve Bank of New York approves this transaction. New York state insurance superintendent Eric R. Dinallo claims "At this point the insurance companies are financially strong and solvent and fully able to meet any claims." In the proposed swap-o-rama the spokesman for the superintendent claims "We're not going to allow them to put junk in the place of good stuff." (as if he has any clue).

Here's the Deal

If the "insurance companies are financially strong and solvent" why the hell do they need to raise $75 billion in another all night poker game with every rule in the book being broken to do so?

What's At Risk?

Life insurance policies, retirement annuities, and those with policy coverage against all manner of calamities, from financial to natural disasters are put at risk just so AIG can make good on a bunch of derivative bets gone bad.

Who Does AIG Owe?

This one should be easy to figure out: any bank or brokerage house scrambling like mad trying to "help" AIG raise cash so that it can pay off on its derivatives bets. The state insurance regulator is stupid enough to go along with this arrangement.

Here's a comment from the Kitco Voy Forum made by "MOA". I received this via email while writing this post.

Right now, illegally and with the regulators watching and nodding in agreement as it happens, lot's of bank deposits, life insurance savings and any unencumbered cash held in the system .... i.e. real life savings and earnings .... has suddenly been made available by the weekend rule changes by the Fed and US treasury. They are now being swept into accounts that hold the other side of the derivative trades.

The firewalls against fraud have been torn in expedience "to save the system from itself". The fraud and incompetence is running rife and has just been taken up another notch. There will be nothing left but the empty husk when the locusts and other assorted parasites have finished.

AIG is blowing all the policyholders protections with the assistance of New York insurance superintendent Eric R. Dinallo, Timothy Geithner, president of the Federal Reserve Bank of New York, and David A. Paterson, Governor of New York.

The Derivatives Tsunami Is Gathering Power
Could credit default swaps, and interest rate swaps, and their associated counterparty risk be the tsunami that wipes out the financial system, creating a liquidity vacuum, that is a liquidity black hole, that sucks up and destroys the world's wealth and overwhelms the central banker's ability to provide financial stability?

A Liquidity Event Will Likely Cause A Financial System Breakdown With State Corporate Rule Being The Outcome
I also wrote that in response to imminent system risk, that is a financial system breakdown, that the Soon Coming Enforcement Of The Security And Prosperity Partnership, The SPP, Places Ones Investments At Risk.

State corporate rule will apply the emergency management provisions of the SPP's Leaders Framework Agreements.

It is important to understand that nothing was signed, the Leaders simply announced a Framework Agreement that directed Councils and Working Groups appoint stakeholders to oversee an integration and operation of political institutions with the institutions of finance, commerce, investment and trade, as well as with the factors of production for the benefit of a North American Homeland.

The new operating principles are global governance principles of security and prosperity that the Council on Foreign Relations, CFR, has been advocating and striving to achieve for years.

Be advised that Gina Cavallaro of ArmyTimes realtes that Under NORTHCOM Direction, Army Combat Team To Deploy October 1st For Civil Security Emergency Management Response; the purpose of the military deployment on US Soil will be to quell any political unrest; and to enforce the new principles of security and prosperity.

Gold Is The Only Financial Safe Haven
The bottom line here is that I encourage that one be invested at BullionVault and GoldIsMoney.

Be advised that currently the price of gold, GLD, is a function of oil, USO. The gold ETF, GLD, traded yesterday at 77.56; it is currently trading at 76.62

The Yahoo Finance ongoing chart of oil, USO, relative to gold, GLD shows that oil has fallen twelve percent in the last two days to 74.19.

I fully expect gold to move lower in price; gold traded yesterday at $786: today it is trading at $780; strong support for gold is found lower at $750; 700 and $675.

The one year chart of Gold, GLD, compared to natural gas, GAZ, and silver, SLV, as well as Silver Standard Resources Inc, SSRI, and Barrick Gold, ABX, proves how speculative the latter four have been -- they got run up by the yen carry traders using the Bank of Japan lending window, and investors who went along believing these had real value got burned very badly. Their fall shows the absolute chaos that has come to the world from using the neoliberal Milton Friedman floating exchange currency system.

The Bible Prophecy Of Revelation Chapter 13 Verse 3 foretells of a systemic risk event ... that is a financial system breakdown
Revelation 13:1-3 Foretells of an end time beast system having seven heads and ten horns, that will rise from the sea of humanity to rule the world.

The seven heads symbolize mankind’s seven Institutions:
1)Education,
2)Finance, Commerce and Trade,
3)Body Politic.
4)Military,
5)Religion,
6)Media,
7)Science & Technology.

The ten horns symbolize ten regions of global governance.

Click here for image of The Beast Of Revelation Chapter 13 rising from the sea of humanity

Revelation 13:3 And I saw one of his heads as it were wounded to death; and his deadly wound was healed: and all the world wondered after the beast.

The head that has a mortal wound is the Institution of Finance, Commerce and Trade -- the wound is a global systemic risk event, that is a global financial system breakdown.

The Scofield Reference Notes (1917 Edition), provides insight into Revelation Chapter 13; special thanks to Heartlight for their presentation of the Scofield Notes.

Related Articles
System, Sovereign, And Seignior To Rule Mankind Bible Reveals

Keywords
liquidity vacuum, liquidityvacuum, evaporation of liquidity, revelation 13:3,

Gold Rises to $787

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The Stock Markets Fell Today On Fears Of Lehman Brother's Credit Default Swaps And Their Counterparty Risk
The US Stock market VTI, fell 4.5%
The Russeell 2000 IWM, 4.5%,
The Dow, DIA, 4.3%
The S&P, SPY, 4.7%

The Nasdaq, QQQQ, 3.1%

The world markets, EFA, 4.2%

The financial shares IYF fell 8%.

The value shares, being more sensitive to the financial sector, fell more than the growth shares. This is readily seen in RUTs 4.5% fall, compared to the QQQQs, of only 3.1%.

In economic news Mike Mish Sheldon relates that Industrial production drops 1.1%, Motor vehicle output plunges 11.9%, MarketWatch is reporting.

Barry Grey writes in article The Wall Street Crisis And The Failure Of American Capitalism that "There were frantic negotiations over the fate of AIG, which faces bankruptcy unless it can raise tens of billions of dollars in capital. When US markets opened Monday, AIG was asking for emergency loans from the Fed to stave off collapse.

A failure of AIG threatens to bring down the entire credit system both in the US and internationally, because the company holds a large stake in the multi-trillion-dollar, unregulated market in so-called “credit default swaps.” AIG has sold CDS contracts to banks, hedge funds and big investors all over the world, under which it guarantees the mortgage-backed debt of a wide range of companies in the event that they default. If AIG should go under, the value of the debt which it insures would fall to an unknown level, destabilizing the credit markets and threatening a chain reaction of defaults and bankruptcies".

Utility Stocks Fell Lower As Well, Documenting That The World Is Fully Into Kondratieff Winter
Utility shares, like the Nasdaq, fell lsss than the overall maket, they fell only 3.3.

The ongoing 3 Month Yahoo Finance chart of utiliites, VPU, compared to IYT, VCR, QQQQ and TTH shows that they sold off with Peak Currencies on July 25, 2008 .... VPU compared to IYT, VCR, QQQQ, TTH.

The MSN Finance chart of VPU compared EFA, VTI, URR for the period of July 25, 2008 to today shows that the falling EURO, reflecting diminished growth opportunities world wide, has been pulling the utilities down ... VPU compared EFA, VTI, URR.

Utility shares, VPU, will never, ever, find a bottom, as the world now has gone into Kondratieff Winter, and economic growth dies.

A rising, 10 Year Government Bond Interest Rate, $TNX, also act as lack of growth, will act to pull Utilities lower.

The Fed Is Likely Moving Towards Zero Percent Central Bank Interest Rate
Liz Capo McCormick in Bloomberg article Fed Adds Most Reserves Since 9/11 as Banks Hoard Cashrelates that "The Federal Reserve added $70 billion in reserves to the banking system, the most since the September 2001 terrorist attacks, to reverse a surge in borrowing costs sparked by the collapse of Lehman Brothers Holdings Inc.

Fed funds traded as high as 6 percent, or 4 percentage points above the central bank's target rate for overnight loans between banks, according to ICAP Plc, the world's largest inter- dealer broker. The margin was the greatest since Bloomberg began tracking the data in 1998. The rate dropped to as low as 0.5 percent after the Fed added the temporary reserves.

The central bank uses repurchase agreements, or repos, to buy or sell Treasury, mortgage-backed and so-called agency debt for a set period, to help maintain enough money in the system to keep overnight interest rates close to the target. They don't signal a policy shift. Futures show traders boosted odds to 68 percent that the Fed will cut rates when policy makers meet tomorrow to offset financial market turmoil".

Elaine Meinel Supkis in article World Stock Markets Crash relates: "The US has no reserves. THIS IS PURE INFLATION. This is funny money made out of thin air. The US has only $60 billion in reserves and has been doling out goodies for a year now. I would suggest, the inability to save Lehman Brothers was due to the Federal Reserve having no more real reserves. China has giant reserves. And increased the banker's reserve ratios...LAST YEAR. The US has done the opposite. Ratios fell to 30-1 or even 80-1 in the case of Fannie Mae.

All of these stupid schemes are to keep interest rates low. This is supposed to create more lending. As I keep pointing out, we hit the 'lending wall'. We can't lend more unless we go into the fatal $0 down, 0% interest and 0% principal paid down systems. This is the system that feeds the Goddess of Inflation with a vengeance.

NO banking system can run this way! The fact that we are seeing this is not a good thing. This is defying gravity. It is unnatural and offends Libra no end. And she will throw the kitchen sink at us."

Meet Libra: she guards the hounds of hell.

Yes hyper-inflation is on the way; this liquidity injection is the very best reason for owning gold; but you will want the gold in the vault, where people can't get to it.

And to make matters worse, Megan Ainscow reports in ActionForex CEP News article that the Fed announces broadened collateral at the PDCF and TSLF.

Liquidity Evaporation Is Fueling The Current Investment Cisis
Barry Grey in WSWS article The Wall Street Crisis And The Failure Of American Capitalism writes that the sudden demise of Lehman Brothers and Merrill Lynch has removed a huge amount of liquidity from the economy, as paper values built up over decades of speculation come crashing down. This is capital that is needed to finance business operations, and its elimination will inevitably depress economic activity, fueling unemployment and recession, further undermining home prices and consumer spending, and further weakening the balance sheets of already financially shaken banks.

Professor Kevin Depew in article It Was Fun While It Lasted relates: Some will argue that by adding $25 billion to the now $200 billion Treasury lending facility, accepting equities as collateral and by cutting short term interest rates, which the FOMC will almost certainly do tomorrow, the Fed is making more credit available, but that credit is being absorbed by the financial system so quickly that the net result is a still continuing credit contraction.

Yes credit is being destroyed far faster than the Fed is monetizing.

The Interest Rate On The 10 Year Note Manifested Fell Awesomely Lower As The Fed Provided TAF And New Facilities To Quell Liquidity Fright And Stock Market Flight
$TNX, in reaction to the Fed providing massive liquidity on the failure of Lehman Brothers, LEH, market place stability, fell 6.6% to close at 3.48 ... $TNX

The Yahoo Finance chart of ^TNX, show the fall in the key interest rate as well ^TNX

Today, September, 15, 2008 we witnessrf a spike down bottom in Treasury interest rates, as there is a so called "flight to safety" in Government Bonds.
SHY, 1-3 year, shows a likely abandoned baby candlestick; it was up 0.71% to close at 83.75.
IEI, 3-7 year, shows a likely abandoned baby candlestick; it was up 1.46% to close at 110.01.
TLT, 20 year, shows a rise to almost match its September 9, 2008 peak; it was up 3.24% to close at 98.02.

BTTRX, zero coupon mutual bond fund, rose 3.70% to close at 61.40 ... BTTRX

Today TLT rose to 98.02 ... TLT

One has to ask ... "A flight to safety into what?" Are US government bonds safe?

As market place clarity developes into the genuine cost of TAF, and the new facilities announced today, as well as the true cost of the bailout of the two mortgage giants Freddie Mac, FRE, and Fannie Mae, FNM, then the interest rate will be going up and price down.

Aggregate Debt, AGG, rose 0.40%, to close at 101.61.

The "inflation adjusted" govenment bond, TIP, rose only 0.59%, manifesting a long legged doji indicative of a stand off between bulls and bears; it being at the edge of a massive head and shoulders pattern suggest that the whole bond complex is right on the verge of falling lower.

The MSN Finance chart of TIP, compared to TLT, SHY, and FXE shows that since July 14, 2008, when the yen carry traders sold oil to take profits, TIP has lost value, as investors are marking in less inflation on a lower price of oil ... TIP

I find that Real Inflation is getting higher all the time, and I am not comforted by the "natural rights" advocates, that is the Austrian Economists, that CPI and PPI is something I am seeing in my rear view mirror.

The rise in TIP of only 0.59% compared to TLT's 3.24, is one of many canaries in the investment coal mine warning investors that the US government bonds are overvalued and should disinvest immediately.

The 250% inverse of the interest rate on 10 Year Note, DXKSX, fell 5.5% to close at 12.88 ... DXKSX

DXKSX could fall lower yet as $TNX might fall even more in the future.

Despite the potential for further increase in the short term in US Treasury Bonds, possilby just days if a systmeic risk occurs that soon, I feel sorry for the fixed income investors, who have chosen to rely on US Treasuries, TLT, and Utilities, they have no idea of the destruction of investment capital, and diminishing dividend yield that is coming.

But I do not feel sorry for Bill Gross or anyone invested in PTTCX which traded unchanged today. Its chart shows a massive dark cloud cover candlestick. It's as Mike Mish Sheldon relates Pimco, Vanguard Are Biggest Bond Fund Losers in Lehman Collapse .... PTTCX

Transportation Stocks Fell Lower Even Though Oil Fell Lower -- Even They Are Loosing Value Now
Transportation, IYT, fell only 2.4% today, compared to the overall stock market VTI, which fell 4.6%, and the world shares, EFA, which fell 4.3%

The 3 month ongoing Yahoo Finance chart of Transports, IYT, compared to VCR, QQQQ, TTH, and VPU, shows the peaking of the transportation sector, even though it has benefited from a lower price of oil. The concept here is that even though we have lower oil prices, the transportation sector will fall lower now on diminshed growth opportunities ... IYT compared to VCR, QQQQ, TTH, VPU.

The gravestone doji in the weekly chart of the transportation stocks, IYT, compared to the overall stocks, VTI, reflects the loss of traction even the energy shares have now ... IYT:VTI

The Dollar Carry Trade That Began July 14, 2008 Is Over
The 2.4% fall in the transportation stocks above, came from an exit of the dollar carry trade, as seen here in the Yahoo Finance Chart of the USD/JPY: investors went about buying yen to repay their 0.5% loans to the Bank Of Japan ... USDJPY

The Resourceful Bear relates that the USD/JPY entered an Elliott Wave 3 Down today September 15, 2008; as can readily be seen in the ActionForex article Daily Report: Dollar Sold off On Lehman Bankruptcy.

This means that the Yen, FXY, has replaced the US Dollar as the world's currency. Although I should say that the yen, FXY, could take some loss now, if we see a bounce up tommorrow in the the Euro, FXE.

The Yahoo Finace chart of the USD/CHF shows that it traded down today again today ... USDCHF

The Yahoo Finance chart of USDCHF compared to uup, drr, itb shows a fall from Thursday's September 11, 2008 high of 1.1416.

ActionForex in article USD/CHF Weekly Outlook shows this epic change as well.

The end of the dollar carry trade, and the end of the US Dollar rally in stocks; and the end of the US Dollar rally itself is communicated in the chart of the transports, IYT, relative to the oil shares, USO ... IYT:USO.

The 5.5% fall in the homebuilding stocks, SAW, discussed below, came from a disinvestment, that is an unwind, of the euro carry trade, EUR/JPY.

It was this unwinding of the yen carry trade that caused Oil, USO, to fall 6% lower; while gold, GLD, rose 2.6% as investors sought a hard asset -- something of genuine value.

The Yen Carry Trade Has Been Aggressively Unwinding
The unwinding of the yen carry trade, is seen in the weekly chart of FXE:FXY .... FXE:FXY

The unwinding of the yen carry trade, senn here in the Yahoo Finace Chart of the EUR/JPY better called the Euro carry trade, has caused very servere disinvestment world wide, especially in oil, USO ... EURJPY

Elaine Meinel Supkis relates again: The land of 0-0-0% has flooded the planet with debts. The Japanese carry trade is now unwinding like the shrouds of the dead on Judgement Day. The yen is rising in value against many major currencies. Inflation is raging in Japan. The wheels are falling off of the government of Japan.

The EUR/JPY entered an Elliott Wave 3 down on August 7, 2008.

The Elliott Wave 3 Down can readily be seen in the ActionForex article EUR/JPY Weekly Outlook

Unlike Elliot Wave 3 Ups which are powerfully sweeping up, Elliott Wave 3 Downs are aggressive and very severely down as we see in the fall of the Euro, FXE, taking down the world stocks, EFA, the emerging market stocks, EEM, especially Brazil, EWZ, and the natural resource stocks, such as metal manufacturing, XME, the HUI indexed precious metal mining shares, GDX, steel producers, SLX, coal producers, KOL, energy producers, XME, and energy service, OIH, oil producers, XLE, as well as the CRB commodities, RJI.

The Yahoo Finance chart of GLD and UUP, DRR, DEE, XHB, EEV shows DEE up 4.6% and EEV up 15.5% and XHB down 5.5%

The Yahoo Finance chart of GLD, DEE, EEV, FXP, UUP, DRR shows FXP up 14.1%.

The Fall Of Homebuilding Stocks Documents Peak Dollar Is In
The 3 month ongoing Yahoo Finance chart of home building, ITB, relative to UUP, documents that Peak Dollar occurred September 11, 2008 ... ITB compared to UUP

The parabolic turn lower in the homebuilding ETF, SAW, dramaticlly communicates that the dollar rally in stocks as well as in the US Dollar itself is over ... SAW

Gold Arose Today As The Measure And Means Of Preserving Wealth
Gold, $GOLD, has always been and always will be a commodity, RJI. But, trading today establishes gold, GLD, as the means and measure of garnering and preserving wealth.

The one year chart of Gold, GLD, compared to natural gas, GAZ, and silver, SLV, as well as Silver Standard Resources Inc, SSRI, and Barrick Gold, ABX, proves how speculative the latter four have been -- they got run up by the yen carry traders using the Bank of Japan lending window, and investors who went along believing these had real value got burned very badly. Their fall shows the absolute chaos that comes from the world using the neoliberal Milton Friedman floating exchange currency system. Every currency is sinking except for the yen, FXY, which rose to strong resistance today at 95.

The Yahhoo Finance chart of the Yen, FXY, compared to the other world currencies FXE, FXS, FXC, FXB shows Peak Currencies quite well ... FXE, FXS, FXC, FXB

From now on, all currencies will be tumbling in a death spiral lower together; its as Kathy Lien of Daily Forex Fundamentals writes Lehman's Developments Spell Trouble for Carry Trades and US Dollar.

Currencies, stocks, and government bonds will be headed lower into The Abyss and gold bubbling higher over time in relationship to all these fiat forms of wealth as risk aversion rises to:
1) US Treauries, TLT, which have gone toxic due to the bail out of Freddie Mac, FRE, and Fannie Mae, FNM,
2) A rising 10 Year US Government Bond Interest Rate, $TNX,
3) The level two assets, level three assets, held by banks, IAT, and the investment bankers, KCE,
4) The load of mortgage backed securities, MBS, carried by real estate, RWR, and insurance organizations, AIG,
5) Derivatives of all types such as credit default swaps, CDS, and interest rate swaps.

Although gold, $GOLD is likely to fall in absolute terms, as the Euro, FXE, falls lower, nevertheless it it will be stable and rise in relative terms to fiat wealth ... $GOLD

The Yahoo Finance chart of the combined EUR/JPY and the USD/JPY, shows that a fall in both currency pairs plus a fall in the USD/CHF, is what sent gold, GLD, higher today ... GLD rose as EURJPY ... and ... USD/JPY fall

Marketplace reaction to the financial sector's debt, when coupled with gold's price rise, provides clear, cogent, and convincing evidence that gold is the sole means now of preserving wealth; with proof positive being the ratio of gold, GLD, relative to US stocks, VTI; and the ratio of gold, GLD, relative to world stocks, EFA, rising in value ... GLD:VTI is rising ... and GLD:EFA is rising

Here is the chart of gold, GLD, from Richard Lehman's Trend Channel Magic Chartsite ; he does well in trend analysis and identifying market turns in gold. ... GLD

Gold's rise today proves its worth as protection against major market events. And even worse events are on the way as the world bankers will be unable to stem the collapse of liquidity and financialization. The 'big one', that is "the systemic risk event", that is an utter market collapse, could come any day.

One source of complete system meltdown could be increased Treasure Repo Fails referred to by Assistant Secretary of the U.S. Treasury Anthony Ryan in Remarks at SIFMA “Wall Street to Washington” Conference: "As you know, settlement failures, or fails, occur when a party selling a security fails to deliver the security to the buyer on the agreed upon settlement date. Settlement failures, occur for a variety of reasons including errors in the back office and miscommunications, and are generally small and resolved quickly. Larger, more chronic fails can occur due to wide-scale operational disruptions or financial market conditions, such as when interest rates reach low levels."

Another cause of breakdown could be the failure of Washinton Mutual, WM, which as the Financial Ninja relates FDIC Can't Afford Washington Mutual Failure

Be advised, gold could fall tomorrow and the US Dollar rise on news of a Federal Reserve rate cut.

Although one could buy gold's ETF, its better to have as much personal possession of gold as possible. The investor should start to dollar cost averaging buys of gold at BullionVault and GoldMoney.

Today The Rubicon Was Crossed
Dr. James Glenn in article Financial Sense article Crossing the Rubicon relates quite well that Democracy died and State Corporate Rule, that is State Corporatism rose today: that should be reason engough for buying gold.

The Chart of the Day
The chart of the day is gold rising to $786: strong support for gold is found lower at $750; 700 and $675.

The US Has Achieved Peak Wealth

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Articles
Peak US Dollar Occurred September 11, 2008

Peak US Government Treasuries Occurred September 9, 2008

Recent Peak US Stock Wealth Occurred August 11, 2008

Charts
Yahoo Finance chart of UUP, TLT and VTI ... UUP, TLT and VTI

Yahoo Finance chart of the interest rate on the 10 Year US Government Bond ^TNX ... ^TNX

Yahoo Finance chart of the EUR/JPY ... EURJPY

Yahoo Finance chart of the USD/JPY ... USDJPY

Yahoo Finance chart of the USD/JPY and the USD/EUR combined

Yahoo Finance chart of the USD/CHF ... USDCHF

Yahoo Finance chart of GLD and UUP, DRR, DEE, XHB, EEV .... GLD, UUP, DRR, DEE, XHB, EEV

Yahoo Finance chart of GLD, DEE, EEV, FXP, UUP, DRR

Stockcharts.com chart of gold, GLD, relative to the Euro, FXE

Stockcharts.com chart of gold, GLD, relative to world stocks, EFA

Stockcharts.com chart of gold, GLD, relative to US stocks, VTI

When the US Dollar, $USD, takes a tumble, and the Yen, FXY, rises, as the world stocks, EFA, and the US Stocks, VTI fall, then gold will arise as the world's currency, and measure and means of means of garnering and preserving wealth
Gold could easily fall to the $650 to $675 to $690 range shown in the July 11, 2007 Kitco Alf Field article Gold We Have Lift Off

The Jesse article Gold and Oil Long Term Weekly Charts As of August 27, 2008 provides the chart of gold where $675 is seen as strong support.

Suggested Reading
Soon Coming Enforcement Of The SPP Places Ones Investments At Risk

Symbols Used In This Report
$USD, ^TNX, EURJPY, USDJPY, USDCHF, GLD, DRR, DEE, XHB, EEV, FXY, EEV, FXP, UUP, DRR, FXE, EFA, VTI, TLT

Keyworkds
AlfField

The USD/CHF Falls From 1.1416

The Yahoo Finance chart of USDCHF compared to uup, drr, itb shows a fall from Thursday's September 11, 2008 high of 1.1416.

ActionForex in article USD/CHF Weekly Outlook shows this epic change as well.

My investment maxims are: First, in a bull market be a bull; in a bear market be a bear. In a bull market, one buys on dips; in a bear market, one sells into strength. Second, buy at market bottoms and sell at market tops.

Since we have a market top, it is to be sold.





Peak Dollar

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Peak Dollar For All Practical Purposes Was Reached September 11, 2008
Stockcharts.com reports that the US Dollar, $USD, closed on Friday September 12, at 78.98 -- down from Thursday September 11, 2008 close at 80.22 ... $USD

ActionPoints in article Index Watch For September 15, 2008 provides the article Weekly Dollar Chart which shows $80.40 to be strong resistance for the US Dollar. This is especially likely when one sees the $80.22 level from the DX Dollar Chart from Jesse's 8.8.08 article, I think that the Dollar Rally has made full retracement.

Gold Analysis In Light Of Peak Dollar
Gold trades inversely of the US Dollar, and so the implication is that gold has the potential to go up, as the US Dollar hits resistance and falls lower.

Jesse documents that there is a terrific number of futures contracts long the US Dollar in article US Dollar Weekly Chart with Commitments of Traders which says: "The explosion in the open interest, which is unprecedented in our memory, and the record level of funds long positions suggests a blow off top driven by forced panic buying probably in some short of squeeze or unwind."

I take the comments recognizing that Jesse is a Dollar Bear and a Gold Bull, so I tone it down a bit and think that there is a massive position long that is supporting the US Dollar.

From reading the Safehaven.com Gary Dorsch article "Maverick McCain" and the Resurrection of the US$, I conclude that the future positions are probably owned by the Saudis, who are likely to hold their positions until their McCain-Palin team is elected. The oil sheiks have covered the Dollar with an oil blanket of protection.

The falling EUR/JPY, that is a falling Euro, FXE, since the selling by speculators of oil futures on July 14, 2008, enforced by a historic level of longs in the futures market for the US Dollar, $USD, has sent the price of gold lower, and will likely continue to send gold lower even more ... FXE and FXY ... Chart of FXE:FXY -- EUR/JPY

The unwinding of the yen carry trade, better called the Euro carry trade, has caused very server disinvestment world wide. The EUR/JPY entered an Elliott Wave 3 down on August 7, 2008.

The Elliott Wave 3 Down can readily be seen in the ActionForex article EUR/JPY Weekly Outlook

Unlike Elliot Wave 3 Ups which are powerfully sweeping up, Elliott Wave 3 Downs are aggressive and very severely down as we see in the fall of the Euro, FXE, taking down the world stocks, EFA, the emerging market stocks, EEM, especially Brazil, EWZ, and the natural resource stocks, such as metal manufacturing, XME, the HUI indexed precious metal mining shares, GDX, steel producers, SLX, coal producers, KOL, energy producers, XME, and energy service, OIH, oil producers, XLE, as well as the whole commodity complex, RJI, oil, USO, and even gold, GLD.

The significant loss of value in silver, SLV, and natural gas, GAZ, proved investment in these to be highly speculative.

Tim Knight has the right investment strategy; he is Getting Ready for the Gold/Energy Short.

This next week as the EUR/JPY begins its relentless downward onslought, it will be time to go long DEE and EEV; as well as to go short EUR/JPY.

ActionForex article EUR/USD Weekly Outlook shows the aggressive fall of the Euro, FXE.

Soon we will have a systemic risk event, most likely, a "liquidity scare" will come, on issues surrounding mortgage backed securities, credit default swaps, CEDS, counterparty risk, and the inability of financial organizations to obtain capital due to FASB 141.

When the world wide financial breakdown comes, and only then, will gold rise in value, and establish itself as the defacto international currency, and means of garnering and maintaining wealth.

Gold could easily fall to the $650 to $675 to $690 range shown in the July 11, 2007 Kitco Alf Field article Gold We Have Lift Off

The Jesse article Gold and Oil Long Term Weekly Charts As of August 27, 2008 provides the chart of gold where $675 is seen as strong support.

Speical recognition to Jeff Pierce for his article, USD, GOLD, and FXE What Now?, where he puts it all together and shows Friday's rise in $Gold to $764.50.

The rise in the USD/JPY to resistance of 107.93 is to be sold
My investment maxims are: First, in a bull market be a bull; in a bear market be a bear. In a bull market, one buys on dips; in a bear market, one sells into strength. Second, buy at market bottoms and sell at market tops.

Since we are in a bear market in this currency pair, the rise to resistance is to be sold.

ActionForex in article USD/JPY Weekly Outlook shows Friday's uptick in the USD/JPY to resistance of 107.93.

The ongoing Yahoo Finance Chart of USDJPY compared to EURJPY, UUP and DRR reflects Thursday September 11, 2008 as this week's high in the US Dollar and the Friday uptick in the USDJPY ... USD/JPY compared to EUR/JPY, UUP and DRR

Greg Michalowski provides a handy chart of the USD/JPY in article USDJPY Is Testing Key Technical Resistance At 107.70.

The market top in the USD/CHF at 1.1416 is to be sold
The market top in the USDCHF is to be sold.

The Russell 2000 Finally Falls Below 72 ... The Dollar Rally In Stocks Is Over

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Financial market report for Friday, 5. September 2008

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Three Special Remarks

First, this report is based soley on information available up until 5:00 PM and does not give allowance for rapidly rising after hours stock market prices during the weekend due to the US government bailout of Freddie Mac and Fannie Mae. I expect US stock prices to gap higher on opening on Monday September 8, 2008

Second, these remarks of Tim Knight are totally helpful from his article Thank Hank where Mr. Knight remarks: "The news looming over all of us now is the government's takeover of Fannie Mae and Freddie Mac. It is reported this would be the largest bailout in the nation's history. As an American, this saddens me. It saddens me to see the government of our country turn its back on true capitalism and whore the nation's treasury for the sake of their friends. This is not how a free market behaves. Free markets - - true free markets - - are natural, healthy, and self-cleansing. Sometimes the cleansing process is painful. But what Hank Paulson and Ben Bernanke are doing is destroying the country's future for the short-term benefit of ingratiating themselves to their small body of constituents.

Having said that, as a bear, I couldn't be happier with this news. As readers here know, last week was sensational for me. But I got out of my index puts since I felt they had done their duty, and I wanted to see indexes fight their way back to their failure levels before re-entering those positions. But what would create such an opportunity? What new reason would the bulls be given to buy? Well, my friends, the reason is here. Straight from God in heaven above. Another bailout. Another white horse. Thanks, Hank. I'm not the patient sort, and this is going to let me reload without the bother of waiting around.

Third, the remarks of Tim Knight in article The Weekend Update I guess the big news hitting the wires after the close is a looming FNM/FRE bailout. That's perfect. I want to do a comprehensive post, and I won't get to it until the wee hours of Saturday morning. C'mon back then. Until then, I dunno. Go have a beer or something. I'm buyin'.

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Stockcharts.com chart of the Russell 2000, IWM shows trading below 72; it closed at $71.64.

The SmallCapNetwork Editor in article Chart Support Lines Broken For All Indices shows the S&P 500, SPY, $SPX, and the Russell 2000, IWM, $RUT, have broken support and remarks now that the damage has been done (support lines have been broken) thanks to retail and employment data, the market will have a tough time repairing itself quickly. I think tomorrow and perhaps even early next week will be mildly positive sessions, and then, WHAM! again. Off we go back to lows from a couple of months ago.

Mr. Carolan in article A New Month shows a chart of the eMini S&P with objective of 1185.

The 3 month ongoing chart ot the Russell 2000 value shares compared to the growth shares, shows the growth share, IWO, falling more than the value shares, IWN.

Gold, GLD, was up more than UUP today.

Let's hope that the gold ETF, GLD, can overcome the bear cross that appeared in its chart today.

Gold, $GOLD, closed down just a hair at $802 today; unfortunately its chart shows a bear cross as well. Kitco.com provides the ongoing contract price of $GOLD.

Jack Chan of JC's Buy And Sell Signals, provides this chart of the US Dollar, $USD, which shows a bull cross; but with a dragonfly candlestick in the daily chart. I keep hoping that Peak Dollar is here.

Jesse provides the article US Dollar Weekly Charts which shows the US Dollar has risen to strong resistance; again, I relate I am hoping that a market top is in for the US Dollar.

The 5 day ongoing Yahoo Finance Chart of DB Commodity Double Short ETN DEE seems overbought ... 5 day ongoing DEE.

Stockcharts.com, DEE, seems due for a fall ... DEE

US Treasuries, TLT, manifested a dark cloud cover at 95.48; let's hope this is the top here.

And lets hope this is the end of the downturn, for now, in the EUR/JPY, FXE:FXY Yahoo Finance quotes an end of day price to the EUR to JPY (EURJPY=X) at 153.89. Action Forex provides the EUR/JPY Daily Outlook. And FXStreet provides the ongoing EUR/JPY

I know there can never be abatement to the downturing EUR/JPY; but my hope for an abeyance comes from two sources: First, the gravestone doji chart of EEV, which comes on a parabolic rise. Secondly, the bearish harami in the charp of FXP.

And lets hope that next week the Yahoo Finance 5 day ongoing chart of the usd/jpy relative to the eur/jpy will show that the USD/JPY will start to fall, and tht the EUR/JPY will rise. Yes let hope the commodity currencies go up, that is the Euro, the Australian Dollar, and the Canadian Dollar, rise; while the consumer currency, the US Dollar goes down ... Here is this weeks USD/JPY compared to the EUR/JPY Yahoo Finance quotes an end of day price to the USD to JPY (USDJPY=X) at 106.37. Action Forex provides the USD/JPY Mid-Day Outlook. And FXStreet provides the ongoing USD/JPY

Let's hope that gold does not fall to the $750 or $700 level shown in Mr. Carolan's Euro & Gold Thoughts chart article.

And let's hope that gold does not collapse like the RJI commodities did as seen in this Stockcharts.com chart of Rogers RJI Commodities. Here is the MSN ongong chart of RJI, GLD, and USO; lets hope gold stays up and does not falther like oil and commodities ... RJI GLD USO

Ellington of TheTraderBlog in article Forex Outlook - Sep 5 provides handy Tradestation charts of the EUR/USD in an oversold position and the USD/JPY just now starting to fall lower.

James Chen in article FXStreet article USD/JPY Update - After the Break provides an insightful chart of the fall of the USD/JPY and relates: Going forward, the broken channel support line should now act as some sort of resistance to the upside (support becomes resistance). Downside support continues to reside around the 105.50 region for the near-term.

The three week fall in the health care sector, IYH, relates that the Dollar Rally in stocks, is over.

The three black crows in the weely chart of the biotechnology stock ETF, XBI, communicates the same thing.

The specialty retailers with the exception of Home Depot, are topping out, as is seen in this ongoing MSN chart of PLCE, AZO and HD ..... Specialty retailiers seen topping out

The chart of volatility, $VIX, gives the green "go light" on short selling as volatility has moved up for the second week in a row now; and resides above its 50 day moving average. I consider $VIX to be in breakout as it has moved back up above the apex of what I call an accordian pattern.

This week's fall in the utilities, VPU, is the nail in the coffin for the US dollar stock rally.

It's fall in the utilities shown just above, and the fall of TIP, communicates to me that inflation is on the way.

The US stocks, VTI, fell 3% and the world stock, EFA, fell 6.5% this week.

The VTI:EFA ratio has been rising since May 19, 2008, which was the end of the TAF, PDCF and TSLF Rally. And now shows a dark cloud cover. I am hoping that there will be a downturn in the US Stocks, and an upturn in the world stocks, and that thus the US Dollar will fall on risk aversion to falling US stock values and that gold will rise.

Larry Swing relates that Bullish Percents took a universal dive across the board. And he relates that with comprehensive damage, to the $NYA, it is looking more and more likely the Dow and S&P will follow suit down past July lows. Given the relative position of breadth indicators (neutral to overbought) there is room to see this evolve into a more substantial decline with the possibility of a bear trap relatively slim.

The unemployment claims report of September 4, 2008 reflects a growing unemployment crisis
Larry Swing in article Labor Pains presents the charts of unemployment benefits.

Bleak in Schadenfreudenow article Unemployment Hits 5-Year High in August presents the chart that shows the unemployment rate reached a 5-year high of 6.1% in August. This is a rate last seen in September 2003.

The foreclosure crisis has worsened
Les Christie of CNN in article Record 1.2 Million Homes Hit By Foreclosure reports that loans in foreclosure have doubled over the past year, and delinquency rates continue to soar.

Gretchen Wenner of the Bakersfield Californian in article Foreclosures Hit New All Time High In Kern reports that one thousand properties foreclosed in Kern County during August, county figures show, the most ever for records going back to 1995. Default notices also hit a new all-time high. Lenders recorded 1,326 last month, numbers from the Kern County Recorder's office show, reversing slight declines in June and July.

News of significant note
David Mildenberg and Ari Levy of Bloomberg report that: "GMAC and its Residential Capital LLC RESCAP home loan unit plan to dismiss 5,000 employees, or 60% of the unit's staff, and close all 200 GMAC Mortgage retail offices because of weak real estate markets."

Suttinee Yuvejwattana and Oliver Biggadike of Bloomberg report that "Thailand's companies face almost impossible hurdles in borrowing overseas because of the nation's political uncertainty, said Pongpanu Svetarundra, director general of the Public Debt Management Office. 'I don't know what I will do if we need to borrow from the market,' Pongpanu told reporters ... 'The costs are too high.' Even state-controlled borrowers like PTT Pcl, Thailand's biggest company, would find it very difficult to sell bonds internationally, Pongpanu said. The government plans to seek funds from lenders including the World Bank, Asian Development Bank and Japan Bank for International Cooperation, he said."

The well springs of liquidity have run dry; and have gone toxic as well for investing long the stock markets.
The first well spring of liquidity was the easy credit provided by Alan Greenspan; credit flowed globally and locally into many investors accounts via credit margin and via low cost and practically no money down home loans.

Elaine Meinel Supkis in article When Magical Piggy Banks Fly writes of Greenspan, "He was the planet's #1 money making magician for many years"

Jan Allen wrote "He was the Purveyor of Credit Liquidity"

The second well spring of liquidity has been the 0.5% Bank of Japan carry trade window of lending; providing the Dollar Carry Trade, USD/JPY, and the Yen Carry Trade, EUR/JPY.

Sentiment recently turned negative on the Dollar Carry Trade and it has started to unwind sending US Stocks lower.

And Kondratieff Winter commenced on August 7, 2008 as the War in the Caucasus broke out and the EUR/JPY began an Elliott Wave 3 Down.

This week the yen carry trade, or perhaps better called the Euro carry trade, saw more unwinding as is seen in the ongoing Yahoo Finance chart of EUR to JPY (EURJPY=X) relative to the emerging markets, EEM, and the formerly yen carry favored stock Vimpel-Communications, VIP .... EUR/JPY=X, EEM, VIP

The falling yen carry trade also unwound trades made deep, that is long ago, in the NASDAQ. Growth stock leader Resarch in Motion, RIMM, fell 12% this week, as there were more reports of weakness in the labor market and increasingly sluggish growth according to the Reuters report by Kristina Cooke.

Market awareness of diminished growth opportunities sent NASDAQ leader Intel, INTC, 10% lower this week; and the semiconductors, SMH, 7% lower as well. The Proshares 200% inverse of the semiconductors, SSG, has been up for three weeks now, that is since August 15, 2008; this week it rose 18%.

Currency trading professionals confirm it's not profitable to stay invested long in traditional carry trade positions
Agnes Lovasz and Stanley White of Bloomberg in article Yen Rises Against Euro, Dollar on Deepening Recession Concerns reports that the yen climbed to the highest in more than a year against the euro on concern the credit-market slump will lead the world into a recession, prompting investors to sell higher-yielding assets funded in Japan.

The dollar fell versus the yen before a U.S. government report that will probably show employment dropped for an eighth month. The yen also jumped to a two-year high against the Australian and New Zealand dollars as investors reversed so- called carry trades after stocks and commodities slumped. The pound weakened for a ninth day versus the dollar.

``There is a big move in terms of risk aversion and we can see the yen getting stronger from here,'' said Martin McMahon, a currency strategist in Zurich at Credit Suisse Group. ``The world is not particularly rosy and the credit crunch and financial problems haven't gone away. It's not appealing to stay in carry-trade type positions.''

Currency traders force central bank sales.

``This issue is serious and the yen is the safest place in this massive geopolitical problem,''' said Toshi Honda, a currency strategist at Mizuho Corporate Bank Ltd. in London. ``The yen move is all due to risk aversion and the risk is mostly deriving from the deterioration of relations with Russia. The yen is enjoying a safe-haven status.''

Russia's ruble snapped three days of declines after the central bank said it sold a ``significant'' amount of foreign reserves yesterday to prop up the currency. The ruble rose to 30.3847 against the central bank's dollar-euro basket, from 30.4045 yesterday.

South Korea's won rose 1 percent to 1,117.95, reversing an earlier drop of as much as 1.2 percent, on speculation the central bank is buying the currency to halt its declines. The nation's foreign-exchange reserves fell by $21 billion in the five months through August to $243 billion as the Bank of Korea bought the won.

Banks in the PIGS, Portugal, Italy, Greece and Spain, as well as in Ireland will now get a haircut on all loans.

Concern that the financial crisis will deepen was heightened as the ECB said yesterday banks in the U.K., Spain and Ireland that have relied on the central bank for low-cost funding will soon have to pay more. The ECB will increase the so-called `haircut' on most asset-based securities from Feb. 1 to 12 percent from as low as 2 percent, the central bank said yesterday. That means it will lend just 88 percent of the value of the paper.

My investment recommendations remain unchanged
I recommend the use a trust account to
1) buy SKF,
2) short sell of MBI, ABK, and RDN, SCA, MTG, RAM, SUR, and AGO.

I recommend a small short position in USD/JPY in a Forex account.

And I recommend the purchase of gold at BullionVault.com and GoldMoney.com as protection against systemic risk events.

For corporations I recommend a purchasse of DXKSX.

The other reason for buying gold is that the former well springs of liquidity, the USD/JPY and the EUR/JPY, have now gone toxic on risk aversion to inflation, debt and decreased profit and growth opportunity.

These currency pairs will now be saws of destruction working to cut asunder fiat wealth; and in the process of sawing, gold will fall out as the world's currency and measure and means of garnering and preserving wealth.

In as much as gold relative to US Stocks GLD:VTI is above 1.15, I believe there is an ongoing investment demand for gold.

US Treasuries are no longer a lifeboat of safety as the have topped out now on the bailout of Freddie Mac, FRE and Fannie Mae, -- look for gold to soon arise as the defacto world currency and measure and means of garnering and preserving wealth as people flee fiat assets and world conflicts escalate.

Suggested Reading
The Elaine Meinel Supkis article US Is Stiffing China One Trillion Dollars! in which Ms Supkis brings back Libra ... She previously remarked Gold is LIBRA. Gold, when used as a restrictor, a curb, a control, is not part of the Cave of Death anymore. Instead, it becomes a GUARDIAN at the Gates of Death! In other words, a goddess or a Watcher. Its function is to protect OTHER WEALTH. The things that are 'real'. Like labor, rice, oil, wheat, land, trade, ships and armies. Hoarding gold doesn't work. It has to be harnessed in the role of regulator, not be a commodity that is just as uncertain as all other things. The chaos, the total chaos we see today is a dynamic of running a system with NO CONTROLS. NO BALANCE. Libra hates this.

The Call Of Bill Gross For The Bail Out Of Freddie Mac And Fannie Mae Means Peak Treasuries

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Introduction
The quotes of Bill Gross of Pimco on September 5, 2008, document a clear and immediate call for the bail out of Freddie Mac, FRE and Fannie Mae, FNM, These quotes call for the Fed to use its recently granted authority by Congress to nationalize the US housing and home lending organizations. The result will be a tight integration of government and enterprise into a combine of state corporate rule.

Mr. Gross said: If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury ... [A] systematic debt liquidation is what confronts the U.S. and perhaps even the global financial system at the current time. Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami.

Debt will be turning lower in value
Mr. Gross' call will have the effect of turning debt lower; I provide charts of the following for historical record.
the US Treasuries ETF, TLT,
the zero coupon interest mutual bond fund, BTTRX,
the corporate mutual bond fund PBDAX,
the long term US Government bond fund PLGBX,
the aggregate debt, AGG,
the futures marketplace US Treasuries, $USB, will all be turning lower.

The bond marketplace will declare a defacto interest rate hike: the interest rate on the 30 year government bond, $TYX, and the interest on the 10 year government bond, $TNX, will be going up.

DXKLX Direxion 10 Year Note Bull 2.5 Fund will be going down

DXKSX Direxion 10 Year Note Bear 2.5 Fund will be going up

Stocks will rise in value
Stocks, especially the homebuilding, financials, and banks will move higher.

The stock value of Freddie Mac, FRE, and Fannie Mae, FNM, will fall in value.

The call of Bill Gross for the immediate bail out of Freddie Mac and Fannie Mae
Bill Gross of Pimco in September 5, 2008 article There's a Bull Market Somewhere? relates:

For the past several months our PIMCO Investment Committee blackboard has continued to display the following lesson plan:

What Happens During Delevering

1) Risk spreads, liquidity spreads, volatility, term premiums – they all go up.

2) Delevering slows/stops when assets have been liquidated and/or sufficient capital has been raised to produce an equilibrium.

3) The raising of sufficient capital now depends on the entrance of new balance sheets. Absent that, prices of almost all assets will go down.

It is the debt liquidation that potentially turns a stagnant/recessionary economy into something much worse.

In the housing market for instance, it is one thing to observe a 15% national decline in home prices. It is much more serious however, when margin calls in the form of monthly mortgage payments (many of which are in-creasing due to adjustable or option-related contractual provisions) lead to foreclosures, which in turn cause a debt liquidation. The bank in this case, takes possession of the home and dumps it back on the market, lowering the price even further, which leads to more foreclosures, which leads to …

This rarely observed systematic debt liquidation is what confronts the U.S. and perhaps even the global financial system at the current time. Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami.

Central bankers, of course, adopting the cloak and demeanor of firefighters or perhaps lifeguards, have been hard at work over the past 12 months to contain the damage. And the private market, in its attempt to anticipate a bear market bottom and snap up “bargains,” has been constructive as well. Over $400 billion in bank- and finance-related capital has been raised during the past year, a decent amount of it, by the way, having been bought by yours truly and my associates at PIMCO. Too bad for us and for everyone else who bought too soon. There are few of these deals now priced at par or above, which is bondspeak for “they are all underwater.” We, as well as our SWF and central bank counterparts, are reluctant to make additional commitments.

Step 2 on our delevering blackboard therefore has stalled and is inevitably morphing towards Step 3. Assets are still being liquidated but there is an increasing reluctance on the part of the private market to risk any more of its own capital. Liquidity is drying up; risk appetites are anorexic; asset prices, despite a temporarily resurgent stock market, are mainly going down; now even oil and commodity prices are drowning. There may be a Jim Cramer bull market somewhere, but it’s primarily a mirage unless and until we get the entrance of new balance sheets, and a new source of liquidity willing to support asset prices.

New balance sheets? Is this now some Deloitte & Touche metaphor? Hardly. What I mean, what our blackboard and our Investment Committee point out is that to ultimately stop this asset/debt deflation, a fresh and substantial new source of buying power is required. This became all too obvious as the Treasury’s attempt to entice additional capital into Freddie and Fannie came up empty. Yet this same dilemma is and will continue to confront all highly levered institutions in the throes of asset liquidation. Without a new balance sheet, their only resort is to sell assets, which in many cases leads to further price declines, or ultimately debt liquidation/default.

If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury – not only to Freddie and Fannie but to Mom and Pop on Main Street U.S.A., via subsidized home loans issued by the FHA and other government institutions. A 21st century housing-related version of the RTC such as advocated by Larry Summers amongst others could be another example of the government wallet or balance sheet that is required during rare periods when the private sector is unable or unwilling to step forward.

The bill for our collective speculative profligacy, obvious in the deflating asset markets, can be paid now or it can be paid later. Those aspiring for a perfect 800 on the Wall Street policy exam would conclude that the tab will be less if paid up front, than if swept under a rug of moral umbrage intent on seeking retribution for any and all of those responsible. Now that the Fed has spent 12 months proving that it “knows something…knows something,” it is time for the Treasury to do likewise.

Commentary
This blog continually communicates that state corporatism is continually on the rise. In order to keep things stable, industry and government leaders have been continually work together continentally and globally to integrate commerce, industry and trade with the government.

Example include
a) The announcement of the framework agreement of the Security and Prosperity Partnership of North America, the SPP at Baylor University
b) The announcement of the framework agreement to create a western world EU US Government at the EU US Summit of 2007.
c) The Federal Reserve's announcment of assistance for the buyout of Bear Stearns by JP Morgan
d) The Federal Reserve's announcement of framework agreements of TAF, TSLF and PDCF on March 18, 2008.
e) The granting by Congress to the Federal Reserve and the Treasury to lend to and capitalized the two GSEs Freddie Mac, FRE, and Fannie Mae, FNM.

And this blog continually communicates that the Liquidation Thesis is being applied: government services and payments, service sector jobs, public and private debt of all types, and unfunded retiree benefits are being contnually liquidated, that is done away with.

The call of Mr. Gross has moved up the action date for required Federal Reserve action to nationalize the GSEs; his call will be forcing the Fed's hand to acquire, that is seize, the GSEs this weekend.

Public and private debt is going to get a haircut, that is a writedown by Mr. Gross' call.

A run on the US Treasuries will get under way soon.

Financial Application
I am short the financial sector via a long position is SKF; Market action is going to go against me in the short term; I plan to keep the SKF as I see a financial collapse coming soon.

Suggested Reading
1) ... US Considering Government Takeover of Fannie and Freddie Jesse reports 9:00 PM Friday August 5, 2008

2) ... US Is Stiffing China One Trillion Dollars! Elaine Meinel Supkis brings back Libra ... She previously remarked Gold is LIBRA. Gold, when used as a restrictor, a curb, a control, is not part of the Cave of Death anymore. Instead, it becomes a GUARDIAN at the Gates of Death! In other words, a goddess or a Watcher. Its function is to protect OTHER WEALTH. The things that are 'real'. Like labor, rice, oil, wheat, land, trade, ships and armies. Hoarding gold doesn't work. It has to be harnessed in the role of regulator, not be a commodity that is just as uncertain as all other things. The chaos, the total chaos we see today is a dynamic of running a system with NO CONTROLS. NO BALANCE. Libra hates this.

3) ... Takeover Of Housing Giants 'Critical', Associated Press reports. President Bush said Sunday Septembe 7th, 2008, that the historic federal government takeover of mortgage giants Fannie Mae and Freddie Mac is needed to keep them from failing, a risk he called "unacceptable" for an economy battered by housing and credit crises. Allowing the companies to fail or further deteriorate would damage our home mortgage market, and could weaken other credit markets that are unrelated directly to housing," Bush said in a statement released Sunday afternoon. "Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth."

Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie. The executives and board of directors of both institutions are being replaced.

In a statement, the president called the moves temporary until the appropriate role for the companies can be determined.

He said they must be reformed so that "they not pose similar risks to our economy or the financial system again."

Treasury Secretary Henry Paulson said the actions were being taken because the failure of either of the mortgage companies "would cause great turmoil in our financial markets here at home and around the globe." The huge potential liabilities facing each company could cost taxpayers tens of billions of dollars. But Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious.

4) ... Statement of James Lockhart director of the Office of Federal Housing Enterprise Oversight, OFHEO, who will head the Federal Housing Finance Agency, FHFA, being created to oversee mortgage backers Fannie Mae, FNM, and Freddie Mac, FRE. (This individual should not be rewarded he should immediately be fired)

5) .... Bailout Nation Continues - Fannie/Freddie now Owned by You Trader Mark relates:

Personally, I feel a lot of disgust and shame in a way of the way our country conducts itself, allowing these things to go on despite warnings, so people along the line can line their pockets.

Wall Street will most likely celebrate as they have once again offloaded risk from them to you. I also feel perturbed because 90%+ of Americans probably have no idea this is happening or it's "too complicated" to understand since you cannot explain it in under 20 seconds. So their ignorance of the issue is being taken advantage of. Just my take. If they understood, perhaps more would actually be outraged at this.

The huge potential liabilities facing each company, as a result of soaring mortgage defaults, could cost taxpayers tens of billions of dollars, but Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious. (My take on this is that it is not tens of billions but hundreds of billions; and there are any number of systemic risk events, which are just as "serious"; and the impact on the US Treasuries is to turn them down forever .... Richard)

The Treasury Department said it will immediately be issued $1 billion in senior preferred stock, paying 10 percent interest, from each company, but eventually could be required to put up as much as $100 billion for each over time if the funds are needed to keep the companies afloat as losses mount. The government also will receive warrants representing ownership stakes of 79.9 percent in each. (And you know when a government institution estimates one cost, that by the time we get there it is usually 2-3x higher. So figure $200 billion x 2-3 times = $400 billion to $600 billion cost to you.)

At both Fannie and Freddie, so-called Alt-A loans, a category between prime and subprime, accounted for roughly 50% of credit losses in the second quarter, even though such loans accounted for only about 10% of the companies' business. Alt-A mortgages include loans made with less than full documentation of borrowers' income or assets. (Yes, how true, and James Lockhart should be arrested for incompetence, not rewarded with a new job).

After the Treasury Department's announcement, credit rating agency Standard & Poor's downgraded Fannie and Freddie's preserved stock to junk-bond status, but reaffirmed the U.S. government's triple-A rating. (yes, I bet a gun is not to their head to never drop that AAA ratings, just like a gun was to their head not to drop the AAA rating on MBIA or Ambak despite total junk status in "reality").

The Federal Reserve and other federal banking regulators said in a joint statement Sunday that "a limited number of smaller institutions" have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans." (translation - there is about $36 BILLION on banks balance sheet of PREFERRED shares - since the banks are in so much trouble we cannot let that fall or it will cause even more pain in our financial system = more of your tax dollars to make sure banks making private party investments are made whole. Repeat, your tax dollars will be used to make sure banks investments in Fannie and Freddie preferred is whole - enjoy). (Those at smaller institutions who invested in Fannie and Freddie should be immediately removed from their jobs).

Mr. Syron (CEO Fannie) may walk away with an exit package that could total as much as $15 million, says David Schmidt, a senior consultant at James F. Reda & Associates LLC, a compensation consulting concern in New York. That includes a pension and deferred compensation, about $3.7 million in severance pay, and a possible payment of $8.8 million to compensate for forfeiting certain equity grants.

Mr. Mudd's (CEO Freddie) exit package, including stock he already owns, could total $14 million, Mr. Schmidt estimates. That includes $5 million in pension and deferred compensation, $4.2 million in severance pay and $3.4 million of restricted stock, based on Friday's closing price.
The great transfer of wealth from the many to the few continues in America - a trend accelerated each year over the past 3 decades. I recommend getting your child into Harvard/Yale - making the right connections with the kids of the "right people", get them employed at the "right" level at public companies or in government, and make sure they get into the "few" slots and not live like the slovenly masses of the current & future. Because this is what our Banana Republic full of nanny state bailouts for the upper 0.5% and corporations has come to, along with keeping the sheep blind with government reports that are useless representations of reality, along with bubbles that come along every 6-7 years to keep the masses "content" that there is a way for them to get rich fast too. Before they lose big time and transfer more wealth to the "right people". If I'm not making myself clear, I'm disgusted with everything I've seen the past year.

6) ... Thank Hank Trader Tim Knight: "The news looming over all of us now is the government's takeover of Fannie Mae and Freddie Mac. It is reported this would be the largest bailout in the nation's history. As an American, this saddens me. It saddens me to see the government of our country turn its back on true capitalism and whore the nation's treasury for the sake of their friends. This is not how a free market behaves. Free markets - - true free markets - - are natural, healthy, and self-cleansing. Sometimes the cleansing process is painful. But what Hank Paulson and Ben Bernanke are doing is destroying the country's future for the short-term benefit of ingratiating themselves to their small body of constituents.

Having said that, as a bear, I couldn't be happier with this news. As readers here know, last week was sensational for me. But I got out of my index puts since I felt they had done their duty, and I wanted to see indexes fight their way back to their failure levels before re-entering those positions. But what would create such an opportunity? What new reason would the bulls be given to buy? Well, my friends, the reason is here. Straight from God in heaven above. Another bailout. Another white horse. Thanks, Hank. I'm not the patient sort, and this is going to let me reload without the bother of waiting around.

7) ... Paulson's Statement On Freddie And Fannie With A Nearly Simultaneous Translation
by Jesse

8) ... Paulson Rolls The Dice At Taxpayer Expense
by Mike Mish Sheldon

9) ... Jim Rogers' Reaction to the Bailout of Fannie and Freddie

10) Eddy Elfenbein provides his take on Nouriel Roubini

Today May Have Been Peak Dollar

, , , ...

Mid-day stock market report
Introduction
The US Dollar failed to move higher as the USD/JPY fell, even though the EUR/JPY fell lower decimating natural resource stocks.

Today may have been peak dollar.

Mid day trading action
The Yahoo Finance 5 day ongoing chart of the usd/jpy relative to the eur/jpy shows that the fall of the USD/JPY has put a cap on the US Dollar, DX, moving higher even though the yen carry trade fell lower today .... The usd/jpy fell lower as well as the eur/jpy

The Yahoo Finance 5 day ongoing chart of USD/JPY shows a close at 108.28. This is presented in ActionForex USD/JPY Mid-Day Outlook

The Yahoo Finance 5 day ongoing of the EUR/JPY shows a fall of the EUR/JPY to 157, FXE:FXY, continued to decimate natural resource stocks such as KOL, OIH, SLX, and XME.

The EUR/USD has finally hit the long-term uptrend support line that has been in place for at least two and a half years. Poking slightly below the line during the first half of European session on Wednesday, price has since rebounded somewhat to settle slightly above the trendline again at 145.01 in chart courtesy of OneBrownGuy. Greg Michalowski of FXDD reports that is 1.4357 is 38.2% retracement.

The HUI Indexed precious metal mining shares, that is the gold shares, GDX, got further disconnected from the price of gold.

Even the venerable fertilizer stock, POT, got further beaten down.

The Nasdaq 100, QTEC, and the Semiconductors, SMH, are taking the Nasdaq, QQQQ, down.

IndexTrader in article NDX: In Search of Support provides the chart of the $NDX falling out of a consolidation triangle.

The fall of the semiconductors, SMH, communicates that investing US growth stocks is over.

A rise in the financials buoyed the Russell 2000, IWM, which manifested a harami at 74.

The chart of the Russell 2000, IWM, compared to the Nasdaq, QQQQ, communicates that investors are selling out of growth stocks yet retaining the value stocks .... IWM:QQQQ.

The Russell 2000 value shares, IWN, compared to the growth shares shows, IWO, IWN:IWO shows how the US Dollar rally has benefited the value shares more than the growth shares. The harami shown will stay up, as long as long as the rally in the US Dollar itself and the financial shares stays up. But then, lookout below, the IWN, that is the value shares, will really go on a tear, and take the Russell 2000 lower.

While, financials, IYF, and homebuilding, XHB, and retail, XRT, are up.

The growth shares are falling, where as the value shares are holding up, on the financial, IYF, sector strength, as seen in this MSN Finance chart of growth shares jkh and iwo, compared to value shares iwn, xhb, xrt, rzv ... Growth shares jkh and iwo have turned down whereas as the value shares iwn, xhb, xrt, rzv are still up.

The Yahoo Finance ongoing 5 day solar stocks, TAN, shows that they have fallen lower with the growth stocks, semiconductors and oil. TAN fell lower with JKH, SMH, and USO.

Gainers today include
SSG on the fall of Dell computer ... up 10%
FXP on the fall of the EUR/JPY ... up 5%
SMN on the fall of the EUR/JPY ... up 4%
EEV on the fall of the EUR/JPY ... up 4%.
REW on the fall of Dell computer and the fall of the semiconductors ... up 4%
SFK on the downturn of the growth stocks ... up 3%
SDP following the coat-tails of SSG ... up 3%

LEH on rumors of Korean buying interest and rumors of Japanese buying interest

Elaine Meinel Supkis writing in Driving Global Banking Off The Cliff relates: Lehman is basically bankrupt. The Asian powers are like the vultures and in the case of China, the dragon that is picking at the corpse to see who gets what portion. One might get the belly. Another one, the eyeballs and tongue. Teeth rend at the inert body. Blood on fangs and noses, they shove each other aside. I wonder which unidentified bank in China is buying Lehman Brothers. I would not shock me to learn the buyer is someone I knew years ago. A high Chinese official told me, in my house, in New Jersey, 'I be BANK!' when he figured out how banks really work.

The mortgage related group rose today
RDN up 21%.
SCA up 28%
MTG up 14%
RAMR up 14%
SUR up 15%
AGO up 5%
ABK up 22%
MBI up 2%

Gold ... Not US Treasuries, or stocks is the real lifeboat of safety
The gold ETF, GLD, lost only 0.5%, and closed at 78.89 as the US Dollar, DX-Y.NYB, failed to move higher .... GLD compared to DX-Y.NYB.

Gold, $GOLD, closed at $800. I am a gold optimist -- I like to think that gold is in an Elliott Wave 2 Down ready to go in an Elliott Wave 3 higher.

Gold relative to the Euro, GLD:FXE Daily and GLD:FXE Weekly is at a critical juncture and needs to keep rising from 0.540

The US Treasury Bubble is about to burst and interest rates are going severely higher
Treasuries ETF TLT moved higher today to 94.77.

The futures Treasuries is calling a market top in Government Bonds, $USB.

The cash market place Treasuries is over extended in relation to the futures Treasuries: TLT:$USB

The chart of the zero coupon mutual bond fund BTTRX suggests that a market top is approaching in government bonds.

And the spike down in the interest rate on the 30 Year US Treasury Bond, $TYX, suggests the same as well.

Utility shares fell lower today: VPU Daily and VPU Weekly.

Higher interest rates and lower utility shares suggest that headline inflation, that is the prices people pay for basic living, will rise even if oil prices continue to drop.

We are transitioning out of the age of prosperity and into the age of financial ruin.
The fall in the USD/JPY today is communicating that the age of prosperity that came through investing in growth stocks is done and over.

We will soon see another fall in the financial shares, IYF, and that will continue to communicate that the age of prosperity that came through financialization is done and over.

Today we have likely seen the death of automobile lending and the death of home loan lending MockThe Market relates that US automakers reported continued declines in sales for the 10th straight month. August sales dropped 20% for GM, 27% for Ford and a whopping 34% for Chrysler. GMAC, the auto and mortgage finance company still partly owned by GM, has announced that it planned to eliminate 5,000 jobs at its Residential Capital mortgage unit and close all 200 GMAC Mortgage retail offices. The job cuts amount to roughly 60% of its workforce and a closure of all of its retail offices.

Soon the US dollar will be falling lower with the commodity currencies and gold will arise as the world's currency and measure and means of garnering and preserving wealth.

The very important economic report comes out on Friday, I hope it will be a turning point lower for the US Dollar, that is DX-Y.NYB, Here is today's chart of DX-Y.NYB; I hope this is as high as it goes.

The Dollar Bull ETF, UUP, shows the same topping out as the US Dollar, DX ... UUP

The gravestone doji in the Dollar, DX, in article Charts in the Babson Style Midweek 3 September 2008 is remarkeable. And note that this is full retracement to the October Citigroup CDO Bust. This gives extra credence to possibly finally being Peak Dollar.

If it is Peak Dollar, then the US Stocks, VTI, will fall; and the world stocks, EFA should rise. There is an ungodly harami candlestick in the weekly VTI:EFA that goes back to December 2006; the Dollar Rally when coupled with the unwinding of the yen carry trade has created a freak of nature in overvalued US stocks ... VTI:EFA

With the exception of XHB and XRT, the MSN chart of VTI and QQQQ suggests that August 15, was Recent Peak US Stock Wealth. VTI, QQQQ, XHB, XRT

As stocks fall lower the carry traders will sell the US Dollar and then the US Stocks will fall even more.

But then again, I thought time and time again we had arrived at Peak Dollar.

The currency traders, especially the yen carry traders, are destabilizing the world financial system and bringing on Kondratieff Winter
Those with access to the 0.5% interest loans from the Bank of Japan are destabilizing currencies world wide, and stock markets globally such as Brazil, EWZ, and South Korea, EWT.

Using the Bank of Japan lending window at the rate of only 0.5% the currency traders are able to destabilize whole countries such as South Korea, where they have gone short the Won and long the US Dollar. The M&C Business News article South Korea Currency Firms Briefly On Dollar-Selling Intervention reports: "The South Korean won was briefly lifted against the US dollar in morning trade on Wednesday, apparently due to suspected dollar-selling intervention by the government.

The slide was temporarily stopped after the South Korean currency fell to a session low of 1,159 won at one point late Wednesday morning. It is suspected that earlier losses were cut as foreign exchange authorities poured in an estimated 1.5 billion dollars.

'It is believed that the dollar selling took place for one hour this morning, as the government must keep the won value above the 1140-level, which is usually seen as the psychological threshold,' said one foreign exchange dealer in Seoul.

The South Korean won hit its weakest since August 18, 2004, on Wednesday with the benchmark index plunging to its lowest level in 17 months as a slowing economy pushed bond and stock funds to move money out of South Korea.

The won has lost almost 18 per cent versus the dollar so far this year, putting upward pressure on already high inflation.

The slowing global demand, combined with inflation has raised concern that a repeat of the 1997 financial crisis may strike Asia's fourth largest economy, which the government tried to deflect Wednesday.

'Our economy is expected to undergo significant difficulties,' said Lee Sung Tae, governor of the central Bank of Korea. 'But it is still my judgement so far that the economy won't go as badly as it was in the 1997 crisis,' he added.

South Korea currently holds 243.2 billion dollars of foreign exchange reserves, which is below the IMF-recommended level of 320 billion dollars. In 1997, the short-term foreign loan stood at 63.7 billion US dollars, which was three times as much as the foreign-exchange reserve.

As of the end of June 2008, short-term foreign loans stood at 175.8 billion US dollar, representing 72 per cent of total foreign-exchange reserve, according to the central Bank of Korea.

South Korean corporations have reduced debt rate. The average debt rate by major manufacturing companies reduced from around 400 per cent in 1997 to around 100 per cent in 2007."

Here is the ongoing MSN chart of the South Korean Market Shares KY, compared to the Russell 2000. KY compared to IWM shows that beginning in May, investors sold the Korean shares and the high yield dividend payers; but then the US Dollar Rally came July 15, which brought the dividend payers and the Russell 2000 shares back up ... KY compared to IWM.

The unwinding yen carry trade has acclerated Kondratieff Winter
Mike Head writing in World Socialist Website article Global Downturn Begins To Puncture Australian Mining Boom describes the personal misery and economic dislocation that comes as investors use 0.5% interest loans from the Bank of Japan "to go short the Euro, FXE, and long the Yen, FXY", in other words go short the EUR/JPY, to take advantage of the falling yen carry trade, and risk aversion to rising inflation and diminishing growth opportunities in the emerging markets. Mr. Head's article, reproduced below, documents the onset of Kondratieff Winter.

Since July, definite signs have emerged that Australia’s mining boom, a major factor in the country’s much touted economic growth during the past decade, has started to crumble under the weight of the world economic slowdown. Mineral export prices have begun to turn. The London Metal Exchange Index of six base metals, including copper, zinc and nickel, fell more than 20 percent from a peak of 4,400 in March to 3,400 in early August.

As a result, the Australian dollar has tumbled. After rising to near parity with the weakening US dollar in the first half of this year, it has become one of the world’s weakest currencies in recent weeks, falling well over 10 percent against the greenback.

While fluctuations in metal prices are certainly affected by speculative flows, the latest downturn is, at bottom, an expression of the markets’ reaction to what some financial commentators have called a “tidal shift” in the world economy. With the exception of China and India, all the major markets for Australian mineral and energy exports are now contracting or on the brink of recession: Japan, the US, Britain and the Euro zone.

While China, which last year overtook Japan as Australia’s largest trading partner, is still growing, its growth has slowed from 11.5 percent last year to less than 10 percent this year, and is expected to drop to 9 percent next year. An even sharper slowdown could be ahead, because about one-third of China’s growth is estimated to come from exports.

Over the past seven years, the Australian mining sector, has benefited from an extraordinary surge in world prices for coal, iron ore, base metals and natural gas. The Reserve Bank of Australia (RBA) Index of Commodity Prices rose by more than 250 percent between 2002-03 and mid-2008, reversing a long period of falling or stagnating prices.

Some of the key rises were even greater. Thermal coal rose fivefold, from $US25 per tonne in 2000 to $125 in the first half of 2008 (January to May); hard coking coal from $40 a tonne to $300; and iron ore from 27 US cents per dry metric tonne to 133. The World Bank’s natural gas index rose to 266.87 in the first half of 2008, from 100 in 2000.

In some cases, these increases are still accelerating. Prices for manganese, a key component in steel and iron production, have more than trebled since June 2007, largely because of a “drought” in manganese supplies, with no new mines on the near-term horizon.

Under contracts signed with Chinese steel manufacturers earlier this year, the coal and iron ore prices will remain at their stratospheric levels for another 12 months. In a June speech to a Canadian business summit, RBA governor Glenn Stevens boasted that iron ore and thermal coal prices would approximately double this year, while those for metallurgical coal would treble. He gloated that China was still “running hot”, whereas Canada’s main export market, the US, was “very weak”.

As a result, Stevens said, Australia’s terms of trade would rise by 20 percent in 2008, taking the total increase since 2002 to nearly 70 percent. He estimated the rise in real domestic income as about 13 percent of GDP, commenting, “We are talking real money here!”

In other words, an extra $A130 billion has flowed into corporate coffers and government tax revenues over the past six years. On the surface, the bonanza is still continuing. Over the past two weeks, the two biggest part-Australian-owned mining giants, BHP-Billiton and Rio Tinto, have announced record profits—$A17.7 billion in a year for BHP and $8 billion over six months for Rio.

Since June, however, spot prices for iron ore and coal have started to fall, along with steel. Iron ore landed in China has fallen from $US200 a tonne to $155; thermal coal at port in Australia from nearly $200 a tonne to $155, and steel is down 10 percent. Chinese steel production is still growing, but much more slowly. Indian prices are also falling.

Even as Stevens was speaking, it was already apparent that prices for other mining exports—freely-traded base metals—had turned downward. Between March and July, the RBA’s base metals index fell almost 16 percent in $A terms and 12.5 percent in US dollars. Some metals have plunged more sharply—zinc is down 37 percent since the start of March, and lead almost 50 percent.

Nickel rose as high as $US50,000 per tonne in May 2007, but it has since fallen almost two-thirds to $18,000. Gold hit an all-time peak of $1,032 an ounce in March and was trading at $965 in mid-July but has since dropped below $775. Copper has fallen almost 20 percent from $8,950 a tonne on July 2 to $7,335.

Particular factors have affected some of these movements. In the case of nickel, for instance, new mines have opened, stainless steel production has been cut massively and China has been substituting domestically produced low-grade nickel pig iron for refined nickel. More fundamentally, however, the falls express the verdict of the markets on decreasing global demand.

“Sentiment in commodity markets has swung heavily negative in the past month,” ANZ Bank senior commodity strategist Mark Pervan wrote in a note to clients this month. “The extent and speed of the declines has prompted us to downgrade our 2008-2010 prices forecasts.” The ANZ warned that the price fall had not ended. It expects the price of iron ore, Australia’s principal export to China, will tumble 10 percent in 2009 and again in 2010. Nickel is set to fall by another quarter this year, then 9 percent in 2009 and a further 19 percent in 2010.

Job losses are another early indicator of the turnaround. Although workers are still flooding into iron ore and coal mining areas, lured by the prospect of high wages, jobs have begun to be axed in other mines.

The lead, zinc and silver mine at Broken Hill in western New South Wales, is sacking more than 450 workers, or almost two-thirds of the workforce. Last month, Minara Resources retrenched nearly 200 workers from its Murrin Murrin nickel operation in Western Australia and Crescent Gold is said to have laid-off about 150 workers when it suspended operations at its Laverton mine in Western Australia. In June, CBH Resources dismissed 220 workers, almost 40 percent of its workforce, at the Endeavour silver, lead and zinc mine near Cobar in central NSW.

Given the dependence of all these sectors on China’s continuing growth, any fall off in Chinese demand will ever more sharply expose the Australian economy’s vulnerability to the global slump, belying claims that it has “de-coupled” from the financial crisis in the US because of the expansion of Chinese and other Asian markets.

The puncturing of the mining boom will have serious implications for the entire economy, not only by slashing jobs, consumer spending and government tax revenue, but also by further undermining debt-laden investment firms and financial institutions, including the major banks.

Commentators have begun voicing fears of severe economic dislocation. “Commodity booms end ugly, they always do, and there has never been an exception,” Access Economics director Chris Richardson told the Australian last week, warning: “The commodity markets are more central to Australian national income than either credit markets or share markets.”

VII. Kondratieff Winter Means An EU US Iran War, Fighting Terrorists, Military Conflict In The Black Sea and Syria Area, And Eventually The Outbreak Of World War III
EU US Iran War: A confrontation between the trans-Atlantic EU US Western World Government and Iran, is imminent over its nuclear ambitions, and will manifest as a military strike on Iran, by the naval armada currently residing in the Persian Gulf.

Fighting Terrorists: Umberto Pascali writing in GlobalResearch.ca article Obama's Running Mate Presents The Strategic Plan For The Next Administration quotes Joe Biden as saying at the Democratic Convention in Denver on August 27, 2008: "The fact of the matter is, al-Qaida and the Taliban - the people who have actually attacked us on 9/11 - they've regrouped in the mountains between Afghanistan and Pakistan and are plotting new attacks. And the Chairman of the Joint Chiefs of Staff has echoed Barack's call for more troops and John McCain was wrong and Barack Obama was right. Should we trust John McCain's judgment? When he rejects, when he rejected talking with Iran and asked what is there to talk about? Or Barack Obama, who said we must talk and must make clear to Iran that it must change?"

Military Conflict In The Black Sea Area And In Syria: RIA Novosti reports that Vladamir Putin Pledges Measured Response To NATO Warships In Black Sea.

World War III: F. William Engdahl writing in GlobalResearch.ca article Missile Defense: Washington And Poland Just Moved The World Closer To War

Who was Kondratieff and what was his Kondratieff Wave Theory?
Following is an part of the Who Was Kondratieff? article found on Kwaves.com and KondratieffWinter.com.

To introduce the Kondratieff Theory, we must go back over seventy years and examine a remarkable story in economic history, encompassed within the life of one still little known man. I am certain that, in time, Kondratieff will rank with the giants of discovery as Einstein and Newton. Like these men, his insights have begun to alter radically and permanently our perceptions of economic history. The Kondratieff wave cycle goes through four distinct phases of beneficial inflation (spring), stagflation (summer), beneficial deflation (autumn), and deflation (winter). Since, the last Kontratyev cycle ended around 1949, we have seen beneficial inflation 1949-1966, stagflation 1966-1982, beneficial deflation 1982-2000 and according to Kondratieff, we are now in the (winter) deflation cycle which should lead to depression.

Professor Nickolai Kondratieff ( pronounced "Kon-DRA-tee-eff") Shortly after the Russian Revolution of 1917, he helped develop the first Soviet Five-Year Plan , for which he analyzed factors that would stimulate Soviet economic growth. In 1926, Kondratieff published his findings in a report entitled, "Long Waves in Economic Life". Based upon Kondratieff's conclusions, his report was viewed as a criticism of Joseph Stalin's stated intentions for the total collectivization of agriculture. Soon after, he was dismissed from his post as director of the Institute for the Study of Business Activity in 1928.

He was arrested in 1930 and sentenced to the Russian Gulag (prison); his sentence was reviewed in 1938, and he received the death penalty, which it is speculated was carried out that same year. Kondratieff's major premise was that capitalist economies displayed long wave cycles of boom and bust ranging between 50-60 years in duration.

Kondratieff's study covered the period 1789 to 1926 and was centered on prices and interest rates. Kondratieff's theories documented in the 1920's were validated with the depression less than 10 years later.

Today, we are faced with another Kondratieff Winter (depression) when the majority of the world anticipates economic expansion. Each individual needs to weigh the risk of depression in light of Kondratieff's work.

In desperate times people look for a leader who promises change and deliverance
Sam Mathid in 321gold article How Obama Won the Election relates: "Obama will win this election ... The word 'Change' will be uttered more and more by Obama, and the need for change will become ever more pronounced as we approach voting day. The only pitfall is now behind Obama. That pitfall was selecting Clinton as VP. Clinton represents 'No Change' and would have killed off Obama's chances of the presidency. Every person who is in dire financial straits will vote for Obama ... McCain is not just old, he is old hat. He stands for no change. There is no chance of McCain being a good president. He is rock solid locked into a mindset that brooks no possibility of new thoughts. He is a man of fixed ideas, and those fixed ideas are the very exposed ideas of George Bush and the neo-cons. Couple that with a bad temper and you have a dangerous mix ... There is a possibility, albeit slim, of Obama becoming a good president because he is a charismatic man who stands for nothing. As such he has a chance of coming to grips with what is really happening in America right now. He is not committed to anything or anybody other than his own success ... McCain has fixed ideas and cannot change anything. Obama has no ideas and can change anything. That is the only message that will come across in November. It is the only message that matters. That is why Obama will win ... God help us".

These people have seen the Christ and his name is Obama; photo courtesy of Gene of the SayAnythingBlog.

Kondratieff Winter will see the rise of combined state corporate rule
State corporatism will replace capitalism: here framework agreements, such as the Security and Prosperity Partnership, the SPP, replace traditional and constitutional law. Stakeholders are appoined to govern in global governance principles of civil security, and decrees of working groups and councils such as the North American Competitiveness Council, the NACC. The stakeholders will oversee the factors of production and direct the use of natural resources for the purposes of the homeland.

Militaism and patriotism be synomous; and will be a cultural more.

Businesses will be tightly entertwined with government as we see from the Military.com and AdvertisingAge article Sears to Sell Army-Approved Clothing which announced that Soldier Chic isn't a new fashion trend, but now consumers will be able to buy officially endorsed military merchandise at their local department store. The U.S. Army has officially licensed its First Infantry Division marks and insignias to Sears.

Sears, Roebuck & Co. has signed a deal with the U.S. Army to launch the All American Army Brand's First Infantry Division clothing collection. It marks the first time the U.S. Army has officially licensed its marks and insignias; licensing fees will be used to support military programs for troops and their families.

Coming to Fashion Week

The president of Sears Apparel said the brand will be prominently featured during the retailer's Fall Forward fashion. The line will also be included in future marketing campaigns, including those slated for the holiday season.

"Over the years, military-inspired clothing has played a distinct role in shaping fashion trends," Mr. Israel said. "We are now able to exclusively offer a line that is pure to the origins of that inspiration."

Military booster

The collection aims to simultaneously raise the profile of the U.S. Army and round out Sears' military program. The collection dovetails with Sears' "Heroes at Home" program, which provides home renovations to military families and has been promoted through twice-a-year marketing campaigns. Sears also has an extensive military-support program that includes community outreach and employee assistance, among other things.

VIII. My investment recommendations remain unchanged
I recommend the use a trust account to
1) buy SKF,
2) short sell of MBI, ABK, and RDN, SCA, MTG, RAM, SUR, and AGO.

I recommend a small short position in USD/JPY in a Forex account.

And I recommend the purchase of gold at BullionVault.com and GoldMoney.com as protection against systemic risk events.

The other reason for buying gold is that the former well springs of liquidity, the USD/JPY and the EUR/JPY, have now gone toxic on risk aversion to inflation, debt and decreased profit and growth opportunity.

These currency pairs will now be saws of destruction working to cut asunder fiat wealth; and in the process of sawing, gold will fall out as the worlds's currency and measure and means of garnering and preserving wealth.

In as much as gold relative to US Stocks GLD:VTI is above 1.15, I believe there is an ongoing investment demand for gold.

US Treasuries are no longer a lifeboat of safety as they seem to be topping out -- look for gold to soon arise as the defacto world currency and measure and means of garnering and preserving wealth as people flee fiat assets and world conflicts escalate.

IX. Suggested Reading
The Building Storm: Gold, the Dollar and Inflation

Either the Fed Kills the Dollar or the Banks. Is It That Simple?

In the Eye of the Storm

The Big Question