Economic Alert #6
November 3, 2008
The Storm Rages On

Stop Foreclosures
The Bailout
The Election - Obama or McCain?
The Euro Again?
What's Ahead?

Stop foreclosure – Stay in your home – Act Now!

A new coalition of homeowner advocates, counselors, and servicers has formed. Called New Hope, it has already helped millions of people to stay in their homes and avoid foreclosure. You can reach them at their website at http://www.hopenow.com or call them at 1.888.995.HOPE.

The Bailout

The US government's historic response to the credit crunch and subprime mortgage failure has been a $700 billion giveaway bailout to the banks who invested in bonds based on these mortgages, rather than to stop foreclosures and demand renegotiation of the mortgages. While this may relieve the credit markets for a short time, this just puts off the inevitable for a few months.

The Election - Obama or McCain?

Most people don't know how close John McCain is to the economic disaster now facing us. Phil Gramm, one of his campaign managers, is called "Foreclosure Phil" because he was the architect of the de-regulation that enabled banks to create the financial mess that we are in now. McCain's current campaign manager, Rick Davis, used to work (until August of this year) for Freddie Mac, which was heavily involved in the sub-prime mortgage fiasco that is the center of the financial crisis. McCain has no idea what to do about the economy, nor do any of his so-called "advisors." Need I say more?

The Euro Again?

The Global Europe Anticipation Bulletin (GEAB), published by some savvy economists from France, has predicted that the current "strong" dollar is temporary. When businesses and governments lose confidence, they will begin to trade in their dollars, and the value of the dollar will plummet. The Euro may be a stable alternative currency (for a while) that is easy to obtain for dollars.

If you have money in savings accounts, the Euro is probably safer than the dollar, but may eventually begin to lose value after the dollar nosedives. Watch the currency markets carefully. Consider investing at Everbank (http://www.everbank.com/001Currency.aspx), where you can choose the currency for your deposit. For long-term investing, consider gold. See my tips on buying gold: http://www.cqs.com/economicalert/gold.htm.

What's Ahead?

The GEAB (see note above) predicts that the U.S. Treasury will likely default on its bonds and certificates, possibly as early as next spring or summer, making any early economic recovery impossible.

References: 

Les Christie, 2 million troubled borrowers avoid foreclosure, CNNMoney.com, August 27, 2008, http://money.cnn.com/2008/08/26/real_estate/Hope_now_hits_two_million/index.htm

UK Telegragh Staff, BIS slams central banks, warns of worse crunch to come, UK Telegraph online, http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/30/ccbis130.xml

Website:  http://www.cqs.com/economicalert
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Bad Moon Rising Economic Alert 3a - update
July 16, 2008
The Meltdown Continues

Contents

IndyMac Failure and the FDIC $100,000 insurance limit

Just as the Federal Reserve Board was dealing with the near-failures of mortgage guarantors Fannie Mae and Freddie Mac, the federal government's Office of Thrift Supervision (OTS) stepped in and declared the bankruptcy of IndyMac, a major California savings and loan bank. It is the second or third largest bank failure in U.S. history, depending on which news source you use. At $32 billion in assets, it's going to be a whopper to pay off its depositers.

U.S. Senator Charles Schumer, D-NY, is being blamed for the failure because, as a Senator involved in several committees on banking, he sent a letter to the OTS with his concerns about the financial condition of the bank. Word of the letter got out, and account holders withdrew a billion dollars in deposits.

Blaming Senator Schumer for the failure is akin to blaming a fire on someone who notices smoke and calls 911. The Senator was just doing his job.

Sadly, some account holders had more than $100,000 in the bank. The FDIC only insures deposits up to $100,000. Those with more will only be paid half of the amount above $100,000. So if someone had, say, $300,000 in life savings, they'll only be getting $200,000.

No one from the bank or the federal government told these people that their deposits were in trouble. And, according to the latest government data, nearly 40% of the money in U.S. bank accounts is uninsured. This is stupid and criminal. All banks should be required to notify their account holders if their accounts are over the FDIC limits, and the federal government should be required to send the same notice to all US residents.

If you have bank accounts totaling more than $100,000 at any bank, please move some of your funds - as soon as possible - to other banks so that you have no more than $100,000 at any one bank.

There is no way to know which bank will be next. Big banks and small banks, mortgage companies and brokerage houses. They are all vulnerable.

Note to FDIC: Please don't blame me for a bank run. I am just informing people of their rights.

References:

Ari Levy and David Mildenberg, IndyMac Seized by U.S. Regulators; Schumer Blamed for Failure, Bloomberg, July 12, 2008

Mike Steinhardt, IndyMac Failure - Test of FDIC Insurance, Seeking Alpha - Stock Market Opinion & Analysis, July 15, 2008

Standard Disclaimer: The information above, Bad Moon Rising Alerts, and the Bad Moon Rising Reports do not constitute financial advice, but are condensations and distillations of the work of others and a few words of what I believe to be common sense. Please seek out an independent licensed accountant or financial advisor to review the information and references I have provided as well as their own expert knowledge, in order to tailor a financial plan to your circumstances. I cannot be held responsible for the consequences of decisions made based on the information I provide. If I suggest that you stop playing the lottery to save money and your number comes up, don't blame me.

Please forward this email, with the links below, to family, friends, neighbors, and other lists. I want to reach thousands - or even millions - of people with this information. Thanks very much.

Website:  http://www.cqs.com/economicalert
Subscribe: economicalert-subscribe@yahoogroups.com

Bad Moon Rising Economic Alert 3
July 12, 2008
The Meltdown Has Begun

Contents:

1. Fannie Mae and Freddie Mac at the Brink
2. Belgian Bank Insurer Fortis predicts imminent US financial system meltdown
3. What to do now?

Fannie Mae and Freddie Mac at the Brink

If people were wondering whether we’re in for bad times, this last week should have widened their eyes just a bit. The stocks of the two primary U.S. mortgage companies – Fannie Mae and Freddie Mac, which together own or guarantee $5.2 trillion dollars in home loans, about 40% of all U.S. mortgages – slid to the point where their future is in grave doubt. So far this year the firms have lost 75% of their stock value.

The Bush Administration is considering providing them access to the Federal Reserve Board’s bank bailout loan program or, if the companies’ capitalization (amount of cash and real liquid assets, compared with loans) is too low, to put the companies in government receivership (that is, essentially acknowledging bankruptcy and wiping out their stock value). The fallout of either of these two US government companies failing would be enormous. Their bonds are held by many banks and pension fund, and they are the foundation of the U.S. housing market. A spokesman at Charles Schwab and Company, was quoted as saying ""Allowing these entities to fail, or even to let things get to the point of it becoming difficult for them to get additional financing in order to continue their operations in the mortgage market would be ... devastating to the US, and indeed the global, financial markets."(1)

Belgian Bank Insurer Fortis predicts imminent US financial system meltdown

The Financial Telegraph of the Netherlands published a financial analysis on June 28 from the perspective of Fortis of Belgium, a major European bank insurer. The article non-chalantly predicts the bankruptcy of GM, Citibank, and some of the 6000 other banks that have low insurance coverage, and says that the company “expects a complete breakdown of the American financial markets within days or weeks.”(2)

What to do now?

Short term, consider moving dollar-based savings accounts into Euros to protect against a short-term free-fall dollar devaluation. See Alert 1a, Buying Euros, for more information.

For longer-term savings accounts, mutual fund investments, consider buying gold directly (see Alert 2, Buying Gold), or investing in rock-solid, audited, insured precious metal funds such as BMG Bullion Fund. If you have a movable pension fund, you can establish a self-directed IRA in which you have the ability to choose where you invest your money such as BMG Bullion Fund. (Please avoid New York City bank-related precious metal funds such as StreetTracks EFT, as the connection between your investment and the actual metals is less direct, and these banks are all in serious financial trouble.) Gold and other precious metals will still be volatile while the speculative vultures are still buying and selling them for short-term gains, but eventually they will be among the few safe investment havens.

If it isn't obvious already, don't buy or sell real estate. The prices are still plunging and there's a long way to go. Expect at least a 30% price drop and a market awash in bankruptcies. More than a million homes reached bankruptcy status in June, 2008.

Wild Card: The U.S., Iran, and Israel. If the US and/or Israel attacks Iran, the world's 4th-largest oil exporter, Iran will probably stop all oil exportation, and has threatened to shut the Strait of Hormuz, stopping most of the world's oil shipments. If any of this transpires, the price of oil will skyrocket and the dollar will be wallpaper.

References:

1. Rob Lever, Fannie, Freddie shares back from brink of meltdown, Agence France-Presse, July 11, 2008, reported by Yahoo News.

2. American 'Meltdown' is the Reason for the Money Injection by Fortis, Financial Telegraph, June 28,2008

Standard Disclaimer: The information above, Bad Moon Rising Alerts, and the Bad Moon Rising Reports do not constitute financial advice, but are condensations and distillations of the work of others and a few words of what I believe to be common sense. Please seek out an independent licensed accountant or financial advisor to review the information and references I have provided as well as their own expert knowledge, in order to tailor a financial plan to your circumstances. I cannot be held responsible for the consequences of decisions made based on the information I provide. If I suggest that you stop playing the lottery to save money and your number comes up, don't blame me.

Please forward this email, with the links below, to family, friends, neighbors, and other lists. I want to reach thousands - or even millions - of people with this information. Thanks very much.

Website:  http://www.cqs.com/economicalert
Subscribe: economicalert-subscribe@yahoogroups.com

Bad Moon Rising Economic Alert #2

For long-term investing – time to invest in gold

In my last alert, I discussed our esteemed Federal Reserve Board Chairman, Ben Bernanke, and his useless bluster against inflation and devaluation. Some people actually expected him to raise interest rates, but he knew that doing this would quickly wreck the economy, since it runs on credit, and since credit is hard to come by already because the sub-prime mortgage fiasco.

He’s between a rock and a hard place, and the rock has a gold vein. Because he’s a free-market guy, he can’t control the astounding rise in oil prices, which drives the prices of everything else. His useless talk gave the word that inflation and devaluation are upon us and there is nothing he can or will do about it. In five days, the price of gold has gone from $890 to $935, and it is still climbing as I am writing this Alert.

Gold analysts are now estimating that the price of gold is likely to rise to $1000 or more. However, it will still be volatile – it is not a good short-term investment. And never – and I do mean never – buy into gold “financing” such as Monex’s Atlas Account. This is gold speculating, and if the price drops – and it will occasionally as someone tries to dump some into the market – you’ll lose everything.

To purchase gold safely: If you have savings and you want to place it in something likely to be more stable than dollars, gold may be the asset of choice. You have many choices of how to buy your gold, but I recommend these two, both available from Kitco. Based in Canada, it is one of the largest and most reliable, convenient, and dependable precious metals dealers in North America, and they don’t sell any speculative scams. You can order online or over the phone. Their customer service is superb.

1. To purchase it quickly and easily and not hold the physical assets, open a Royal Canadian Mint Account at http://www.kitco.com. The advantage is that you don’t need to pay shipping, handling, and insurance, and you don’t need to figure out where to store the gold safely. It is stored for you at the Mint for a flat fee of $60 per year (for all of your holdings) and there is a transaction fee of $25 per transaction. Click on Precious Metal Store, and then click on the button for the Royal Canadian Mint Account.
2. If you want to hold the physical assets (in a bank safe deposit box, never in your home!), you can purchase gold directly from Kitco. Just go to their website, http://www.kitco.com, go the Precious Metal Store, and click on Complete Bullion Products. The most convenient and saleable product is the one-ounce gold bar. Kitco’s price is about $10 above the gold market price, and then you’ll also need to pay shipping, handling, and insurance, which can be as much as $50-$60, so unless you are getting a large amount – five ounces or more – the cost of this option eats into your investment. 

Standard Disclaimer: The information above do not constitute financial advice, but are condensations and distillations of the work of others and a few words of what I believe to be common sense. Please seek out an independent licensed accountant or financial advisor to review the information and references I have provided as well as their own expert knowledge, in order to tailor a financial plan to your circumstances. I cannot be held responsible for the consequences of decisions made based on the information I provide. If I suggest that you stop playing the lottery to save money and your number comes up, don't blame me.

Bad Moon Rising Economic Alert #1a - update

June 25, 2008

Contents

1. Welcome to Economic Alert #1a
2. Predictions from the experts
3. Ben Bernanke Bluster
4. Quick things to do
5. Focus on the Euro as a short-term investment – an item from Bad Moon Rising Economic Bulletin #1, planned publication July 15, 2008

Welcome to Bad Moon Rising Economic Alert #1a! (If you got Alert #1, you probably noticed it was a bit scanty. I had a house guest who occupied my office, so I couldn't get to my computer.) Repeating: It is my hope that by providing information about the real state of the economy and what lies ahead (according to some of the best academic researchers who focus on “predictive” economics and finance) I can help thousands of people – and, if I’m lucky, millions of people – to survive the coming turmoil. Please share these alerts with family, friends, neighbors, and anyone else you think might be interested, and point them to the subscribe email address or the website address:

economicalert-subscribe@yahoogroups.com

http://groups.yahoo.com/group/economicalert

Predictions from the Experts (GlobalEurope, James Turk, Banking Times, others)

Recession – a long-term recession is now underway and shows no signs of letting up. Some bankers in Europe believe the crisis may get much, much worse, openly talking about economic depression on the scale of the Great Depression.

Capital outflow resulting from economic globalization (outsourcing, moving of factories and service industries to low-wage countries) has undermined the ability of the US to balance its international payments. The result is that countries all over the world hold so many dollars they don’t know what to do with them. The likely result: devaluation of the dollar as compared with the euro and other more stable currencies.

Residential and commercial real estate are losing in value and, according to one reliable source, residential real estate is a “bottomless pit.” Neither are predicted to return to current values.

Ben Bernanke Bluster – the last-ditch effort to the stop the dollar’s slide against the euro. Earlier this month the Federal Reserve Board trotted out its esteemed chairman, Ben Bernanke, to tell the world that he would protect the dollar and the U.S. economy against devaluation and inflation with the threat of raising interest rates again. Yesterday, June 24, we had a repeat performance of the same rhetoric.

Given the current credit crunch caused by the sub-prime mortgage fiasco, an interest hike would likely stifle the economy even more rapidly than its current downward spiral and/or push the banks and brokerages The Fed is lending to over the brink, and Bernanke is fully aware of this. So it was either all bluster, or he is even loonier than most grounded economists (those with their feet on the ground and their head on straight) think. So for now it appears to be all bluster and hot air. The tale changes daily.

The most amazing thing, though, is that many people in the markets actually believe him when he speaks, and the dollar rises against the euro – for about two days – and then continues its downward slide again. I suppose some people like to make money from this kind of propaganda and spin.

What To Do?

If you are considering selling a home, or especially a condo, it’s probably not a good idea to put any money into it for the sale. It will probably be very difficult to sell, especially if it is a condominium. Prices are in a downward slide, and the slide is going to steeper.

If have a pension fund that is based on stocks or bonds and you can move the investments in it, you might consider moving them to safer ground.

Focus on the Euro

Start saving money now if you can. If you are looking for a very long term hedge against (rather inevitable) inflation and devaluation, gold and other precious metals are likely to be a safe bet. GEAB and other analysts suggest that precious metals are among the very few investments which will retain their value over the long haul.

But gold is very volatile right now, and appears to be manipulated to stay between $880 and $900 per troy ounce, with the other metals following the same pattern. If you need a short-term hedge – a safe haven for savings that will maintain its value when the dollar slides, Euros are likely to be safe, and they can be exchanged at many branches of the larger banks, especially in city branches.

If you decide to use Euro notes in this way, you can legally avoid paying taxes on the currency exchange gain (if the dollar falls against the Euro) by obtaining and then exchanging 50-Euro notes. Current IRS rules specify that there is no tax on exchange of “non-functional currency” if the exchange is for personal expenses (not for business expenses) and the amount of each exchange is less than $200. (For larger transactions, you are taxable at your usual personal tax rate on currency gains, that is, the amount that you have gained by exchanging to Euros and back again to dollars.)

To get the best exchange rate, establish a free checking account at a branch of one of the major multi-state or multinational banks that offers dollar/Euro currency exchange. Be sure to keep the Euro notes in a small safe deposit box at the bank; never store currency at home. Use your checking account to make the exchange – deposit money into it from other checking accounts or from your employment check – and keep all your transaction records, including where all of the money came from. Then, when you need to use it, take out 50 Euros at a time if you want to avoid taxation on it. If a bank employee asks you what you are doing with Euros, just be honest: say that you are exchanging dollars to Euros in case the dollar falls in value.

The reason for all this record keeping and formal storage in a safe deposit box is that large amounts of cash – of any currency – is considered suspicious by drug enforcement officers, and you can have your money seized and tied up for months or even taken away if you don’t maintain proper records. For the same reason, even if you plan to pay taxes on the gain, don’t take out more than $1000 at a time. All large money transactions involving cash are also considered suspicious. By the way, what you store in your safe deposit box is completely private, so no one really needs to know that you are storing your Euro notes there.

References:

Banking Times, 06/09/2008

Global Europe Anticipation Bulletin #25, May 16, 2008

Global Europe Anticipation Bulletin #26, June 16, 2008

The Collapsing Housing Bubble and Resulting Financial Fallout, Dollars & Sense, 4/1/2008

Weimar Inflation in America, James Turk, May 26, 2008

Taxability of exchange gains: US Federal Code Title 26, 988

Bad Moon Rising Economic Alert #1

June 22, 2008

Contents

1. Welcome to Economic Alert
2. Predictions from the experts
3. Quick things to do 

Welcome to Bad Moon Rising Economic Alert! It is my hope that by providing information about the real state of the economy and what lies ahead (according to some of the best academic researchers who focus on “predictive” economics and finance) I can help thousands of people – and, if I’m lucky, millions of people – to survive the coming turmoil.

Predictions from the Experts (GlobalEurope, James Turk, Banking Times, others)

Recession – a long-term recession is now underway and shows no signs of letting up. Some bankers in Europe believe the crisis may get much, much worse, openly talking about economic depression on the scale of the Great Depression.

Capital outflow resulting from economic globalization (outsourcing, moving of factories and service industries to low-wage countries) has undermined the ability of the US to balance its international payments. The result is that countries all over the world hold so many dollars they don’t know what to do with them. The likely result: devaluation of the dollar as compared with the euro and other more stable currencies.

Residential and commercial real estate are losing in value and, according to one reliable source, residential real estate is a “bottomless pit.” Neither are predicted to return to current values.

What To Do?

If you are considering selling a home, or especially a condo, it’s probably not a good idea to put any money into it for the sale. It will probably be very difficult to sell, especially if it is a condominium. Prices are in a downward slide.

If have a pension fund that is based on stocks or bonds and you can move the investments in it, you might consider moving it them to safer ground.

Start saving money now if you can. Euros may be safer than dollars, use 100 euro notes to avoid taxes on exchange gains (store in a safe deposit box, not under your mattress).

More next week!

Regards

Jonathan