Tuesday, November 24, 2009

0.01% and Reality

Bill Gross (PIMCO) is musing about how bad it is to earn 0.01% on his Money Market accounts and suggests placing his riskless money into Utilities…


He talks about how the designs of the Fed are to keep Interest Rates so low that they force you to move your money into risky assets.

“The Fed is trying to reflate the U.S. economy. The process of reflation involves lowering short-term rates to such a painful level that investors are forced or enticed to term out their short-term cash into higher-risk bonds or stocks. Once your cash has recapitalized and revitalized corporate America and homeowners, well, then the Fed will start to be concerned about inflation – not until.”

I think the key issue will be when your Purchasing Power is getting ravaged by Inflation, then you will have to do something to protect yourself. But, with Inflation at effectively Zero, there isn’t much cost to staying in Cash, if your overall goal is to keep your money SAFE.

One Month US Treasury Bill yields actually went negative last week and the Three Month Yields were even worse. So are people really buying US Treasuries, even as the Fed tries to force people to put their money into riskier assets?

You bet they are. FDIC Insured balances (Money Market Funds) actually increased about $400 billion last month.

Why? Because they don’t trust the number reported by the Government and Wall Street. They want to know that they still have money and will worry about Inflation after they actually see it.

Morgan Stanley is telling you that the Yield on the 10-Year US Treasury will pop 2.20% higher next year. I am guessing that there is not a chance in **** that Rates will rise that far, because if they do, then housing prices collapse again. If TBT breaks out, then I will change my opinions and change my allocations…


This weekend, two Fed officials talked about extending the Fed’s programs to buy mortgages beyond their current expiration date of March 2010. This is their vehicle for capping Interest Rates. Do you think they want Rates to go higher or lower?

If rates will be capped, then there are a lot of investors who would rather buy guaranteed safety and forgo the extra percent or two they could get by taking what may be substantial risk.

Money printing to keep Interest Rates down = good fundamentals for Gold…

Sunday, November 22, 2009

Wells Fargo and FHA "Guarantees"

Over the last 18 months I complained a lot about how the decisions of policy makers we designed to move a lot of worthless debt from the balance sheets of the banks to the balance sheet of the US Taxpayer. Wells Fargo pretty much now embodies the consequences of what I was said would occur.


“Wells Fargo & Co. (NYSE:WFC), in its most recent 10-Q, discloses that it need not bring on balance sheet ANY of the $1.1 trillion in conforming residential OBS exposures that are the subject of the new FASB rule eliminating the "Qualified Special Purpose Entity" designation. Why? Because the loans inside these securitization vehicles are insured by FHA, so goes the thinking of WFC and its auditor, thus the bank has no liability to these entities or the securities they have issued to investors. Pretty neat trick, eh?”

You read that right, because Wells Fargo knows that the US Taxpayer will clean up their mess (via the FHA), they think it is okay to not even bother discussing $1.1 TRILLION in mortgages they originated and OWN! Why? Because they figure, how can you take losses on something that is guaranteed by the US Taxpayer?

How stupid are we? Why do we put up with this stuff? When is one of these SOBs going to go to jail?

As of last week, 17.71% of all FHA mortgages are in default. 8.52% are more than 90-days delinquent.

Do the math - Wells Fargo has $1.1 Trillion of Mortgages off the books and another $700 Billion of Mortgages on the books. At an 8.5% default rate, that means they should be reserving about $153 billion for future losses. That would make Wells Fargo bankrupt. They are telling all who will listen that $93.5 billion in losses are going directly to the US Taxpayer!

Bank of America (think Countrywide) also has tons of these toxic Mortgages on their books and they are carrying these loans at artificially high values too.

Think of all the other smaller banks that aren’t reserving for the real losses in these FHA mortgages…

When the FASB got rid of “marked to market” accounting, they bought the banks and the Central Banks of Asia and Europe enough time to unload Trillions of Dollars of worthless mortgages onto the balance sheet of the US Taxpayer – via Agencies (Fannie Mae, Freddie Mac, FHA) and the FRBNY.

Now the Fed is saying that buying $1.25 Trillion in Mortgages is not enough and that is would be a good idea to have the US Taxpayer buy still more of this toxic waste.


But we can’t audit the Fed, because it needs to remain “independent”…

Do you wonder why I keep buying Gold?