David Levenstein

As we see the end of another year, and even though the price of gold has come off its highs of over $1225, the price gold gained some 30% this year. Now, as the dollar rebounds from it's lows, and as most equity analyst are looking for global equities to continue upwards, there is talk that gold has made it's high. While we are all entitled to our opinions, I believe that these analysts fail to see the bigger picture and that the price of gold has a long way to go before this bull market peaks.

From the 1980's high of $850, gold was in a bear market for some 21 years. During those years, the International Monetary Fund (IMF) as well as most central banks around the world tried to sell as much gold as possible. Some of the sales were done with "impeccable" timing such as the sales made by the United Kingdom that sold a large portion of their gold during 1999 and 2002 when the price of gold was around $275. And, as these bankers disposed of their gold holdings, the bullion banks in London and New York kept going short gold by using the futures markets.

The reason for me mentioning this is because I believe there are still many people who are of the mindset of this era and fail to see that since 2001 gold has been in a very strong bull market and still is. And this bull market is far from over. Yet, even to this day, the major bullion banks in New York maintain unusually large short positions of gold. One simple trading rule is to always follow the trend. If they can't see this upward trend, then perhaps they are looking at their charts upside down!

The current bull market in gold is far from over. In fact it is only beginning

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Dean Baker

That word would be "TARP" of course. The night before Christmas, the Treasury announced that these two bankrupt mortgage giants would get an unlimited draw on the taxpayers' dollars. This looks a lot like TARP.

Just to remind everyone, the original TARP program was about buying up bad assets from banks. It had the appearance of the mother of all bailouts, as it seemed likely that the government would overpay for these assets, handing public money to bankrupt banks. The TARP changed course, with the government providing hundreds of billions of dollars of loan money to banks at a time when the private sector had no confidence in the banking system.

The TARP, along with the much larger lending programs from the Federal Reserve Board and the FDIC, succeeded in preventing the financial system from collapsing. The banks are now back on their feet, with near record profits and near record bonuses for the executives who are so skilled in getting public money. The largest banks have now repaid their TARP money, with many smaller banks anxious to follow suit in order to avoid troubling questions about how they have used their taxpayer dollars.

Fannie Mae and Freddie Mac: Just a Four-Letter Word?

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Backdoor Bank Bailout: Obama's Capitalist Cronyism

by Aaron + Alaine

The blog Naked Capitalism takes note that on Christmas Eve, the Treasury Department announced it had... considerably increased its Freddie and Fannie safety net, by removing all limits on the amounts on offer (an increase from a ceiling of $400 billion) and simultaneously allowing the two GSEs to increase their balance sheets near term. Previously, they had been required to shrink their portfolios by 10% per annum; now it is their ceiling which will be lowered by 10% a year, and that ceiling is much higher than their current exposures ($900 billion versus roughly $760 billion for Freddie and $770 billion for Fannie as of the end of November).

The proper interpretation of these events is succinctly laid out by Edward Harrison at the Credit Writedowns blog, to wit....Fannie Mae and Freddie Mac would be used as a nationalization of America’s mortgage problems via a back door bailout of banks. The evidence, therefore, tends to demonstrate that we have witnessed an orchestrated campaign by the Bush and Obama Administrations to recapitalize too big to fail institutions by hook or by crook, bypassing Congressional approval if necessary.

I'm open to a hearing of the argument that what the administration has done and is doing is justifiable, however Harrison further points out some really objectionable elements about this back door stealth bailout: 

Backdoor Bank Bailout: Obama's Capitalist Cronyism

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By Jim O’Neill

It is now more than eight years since we at Goldman Sachs first wrote about the BRIC concept—the idea that the emerging markets of Brazil, Russia, India, and China would come to play a new and more muscular role in the global economy. Throughout the period leading up to the collapse of Lehman Brothers, we often felt that the durability of the BRIC concept needed to be tested through an economic shock.

It is one thing to have strong growth when everything elsewhere seemed fine, but strength can only really be proven through less favorable external conditions. The recent turmoil certainly qualified as that, and the BRIC economies survived it well. Indeed, these days we think that the combined GDP of the BRICs might exceed that of the G7 countries by 2027, about 10 years earlier than we initially believed. So why has this crisis been good for the BRICs?

For China, it has forced changes in the country's previous, unsustainable export model. The decline in U.S. and European spending convinced Chinese policymakers that they must quickly stimulate domestic demand if they are to have any chance of maintaining their goal of annual GDP growth at 8 percent or higher. Already it looks like Beijing's swift and savvy stimulus plan is working. China will likely overtake Japan as the No. 2 economy in the world by the end of 2009. We estimate that within 17 years, China will also overtake the U.S.

BRICs are Still on Top

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Gold: how high will the price go in 2010?

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By Paul Farrow

"Notwithstanding the recent correction – and the possibility that gold may yet fall further before bargain hunters and other buyers (including central banks) reappear – the four pillars of gold-price strength remain intact.

They are inflation-fueling US monetary and fiscal policies; Central bank reserve diversification with the official sector being a taker rather than a supplier of gold in 2009 and the next few years; expanding retail and institutional investor participation in the United States, China, and around the world; and declining world gold-mine production.

We have consistently warned (and continue to do so) that gold’s advance would be marked by high volatility and occasional sharp reversals that would lead some to believe the long bull market in gold has ended – and we will continue to hold this view even if the metal falls back yet another $100 an ounce.

Looking ahead to 2010, don’t be surprised to see gold at $1,500 or higher by the end of next year."

Gold: how high will the price go in 2010?

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Government Housing Support Update

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by CalculatedRisk

As everyone knows there has been a massive government effort to support house prices. Some of this has been aimed at limiting supply (modification programs, various foreclosure moratoria), and some has been aimed at increasing demand (tax credit, lower mortgage rates, loose lending standards).

Here is a quote from Secretary Geithner from a recent Newsweek interview by Daniel Gross:

"We were very careful from the beginning ... to say that we are going to focus the bulk of the financial force on bringing interest rates and mortgage rates down to cushion the fall in housing prices and help stabilize home values, which will feed into people's basic sense of financial stability."

To help keep this straight, here is a list of the status of a number of programs:

Government Housing Support Update

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Exclusive: Nexus One full specs detailed, invite-only retail sales starting January 5th?

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By Chris Ziegler

We know you're itching to get your hands on a Nexus One -- Google's managed to build buzz here the way only a couple companies in the world know how. Unfortunately, it sounds like you're going to need to cross your fingers (or pull out that eBay emergency stash) to get one out of the gate, because we've got some intel here suggesting that it'll be available only by "invitation" at first. Our tipster doesn't have information on how those invites are going to be determined, other than the fact that it's Google doing the inviting -- if we had to guess, current registered developers are a strong possibility -- but the good news, we suppose, is that T-Mobile will apparently sell the phone directly at some to-be-determined point in the future. Oh, but that's not all -- we've got specs, too. Lots of them. Here are the highlights, but follow the break for the whole shebang:

Exclusive: Nexus One full specs detailed, invite-only retail sales starting January 5th?

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Fannie And Freddie Receive Unlimited Future Funds To Stay Afloat

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J.W. ELPHINSTONE

The government has handed its ATM card to beleaguered mortgage giants Fannie Mae and Freddie Mac.

The Treasury Department said Thursday it removed the $400 billion financial cap on the money it will provide to keep the companies afloat. Already, taxpayers have shelled out $111 billion to the pair, and a senior Treasury official said losses are not expected to exceed the government's estimate this summer of $170 billion over 10 years.

Treasury Department officials said it will now use a flexible formula to ensure the two agencies can stand behind the billions of dollars in mortgage-backed securities they sell to investors. Under the formula, financial support would increase according to how much each firm loses in a quarter. The cap in place at the end of 2012 would apply thereafter.

By making the change before year-end, Treasury sidestepped the need for an OK from a bailout-weary Congress.

While most analysts say the companies are unlikely to use the full $400 billion, Treasury officials said they decided to lift the caps to eliminate any uncertainty among investors about the government's commitments. But the timing of the announcement on a traditionally slow news day raised eyebrows.

Fannie And Freddie Receive Unlimited Future Funds To Stay Afloat

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Gravity will drag the $US

by Rebecca Wilder
The US dollar ($US) is on a roller coaster. And since S&P downgraded Greece to BBB+, the dollar has been on the rise. One can attribute the recent shift in the $US to many things - improving US economic conditions, return to risk, or relative weakness in other G7 countries, whatever. But what is clear, is that the dollar's gaining some strength, 4.7% since the beginning of December on a trade-weighted basis.

But this is not sustainable. As economic recoveries diverge (i.e., the G7 recovery is expected to be slower than that in key emerging markets), the dollar will likely fall. That's just gravity, and a necessary condition for sorting out global trade flows.
Gravity will drag the $US

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Default Nation

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Daniel Gross

Strategic defaults—the phenomenon of people who could continue to make payments on the mortgages on their homes deciding to walk away from their obligations—are rising. According to the Wall Street Journal, strategic defaults are likely to exceed 1 million in 2009. This is making some worry about the very future of capitalism. Georgetown University business ethics professor George Brenkert told the Journal that borrowers who can afford to stay current are morally required to do so, and that were Americans to conclude they could just walk away from obligations, it would be disastrous. Mortgage Bankers Association CEO John Courson wondered about "the message they will send to their family and their kids and their friends?" Blogger Megan McArdle expressed disdain for people who chose to indulge themselves on consumer goods and services while not keeping current with their mortgages.

Um, do any of these people read the Wall Street Journal? Strategic defaults are the American way, and I'm not talking about strapped middle-class borrowers who prefer spending money on vacations to staying current on their payments. Deep-pocketed companies, billionaires, and institutions that can afford to stay current on payments strategically default all the time.
Morgan Stanley, for example, is a gigantic corporation. As of the second quarter, it boasted total capital of $213.2 billion. It certainly has the ability to make good on obligations incurred by its many operating units. But earlier this month Morgan Stanley said it would turn over five San Francisco office buildings to lenders rather than pay the debt on them. Why? Morgan Stanley foolishly paid top dollar for the buildings in 2007, when prices were really high. The values have plummeted, and tenants are hard to come by. "This isn't a default or foreclosure situation," spokeswoman Alyson Barnes told Bloomberg News. "We are going to give them the properties to get out of the loan obligation." Smells like a strategic default to me.

Default Nation

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Google Mobile Phone – The Nexus One

The Apple iPhone is probably the handset that generates the most chatter on the web. Anything and everything regarding the iPhone is eagerly lapped up by fans of the device, and Apple do a good job of capitalising on this.

Recently, though, the most talked about phone is a handset that may not even exist, the fabled Google Phone. There is a lot of talk about the possibility of Google producing their own handset, hardware and firmware, and has been for years now. The rumours first started before the launch of Android, where Google were rumoured to be making their own phone, only for the Android operating system to be announced. The first phone running on the Android OS, the G1, released soon after.

The rumours have never really gone away though, and in the last few weeks they have returned with some force, with internet chatter reaching fever pitch. To be honest, it is hard to sort out the ‘could be true’ rumours from the ‘you’ve got to be kidding’ stuff. As the talk started to rise in level, it came to light that Google had in fact given some of their employees an ‘unknown’ handset, running on Android 2.1. This news soon spread across the web, with the Google employees openly talking about the phone on Twitter.

Google Mobile Phone – The Nexus One

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U.S. foreclosures top 1 million, report finds

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By Jim Puzzanghera

Troubled home loans continued to mount in the nation's banks in the third quarter as even once-solid borrowers increasingly fell behind on their mortgage payments.

For the first time, foreclosures on mortgages serviced by U.S. national banks and savings and loans topped the 1 million mark, according to figures released Monday by the Office of Thrift Supervision and the Office of the Comptroller of the Currency. The percentage of prime borrowers whose loans were more than 60 days past due doubled from the July to September period a year ago, while more than half of all homeowners whose payment had been lowered through modification plans re-defaulted.

The report, which covers about 34 million loans or about 65 percent of all U.S. mortgages, underscores the obstacles facing policymakers trying to strengthen the nation's housing market. Persistent unemployment is making it tough for millions of homeowners to pay their home loans.

In addition, many people whose monthly installments have been lowered through mortgage modification programs still are unable to keep up.

Current and performing mortgages serviced by national banks and thrifts fell to 87.2 percent — the sixth-straight quarter that the quality of their home loan portfolios has slipped.

"Mortgage performance continued to decline as a result of continuing adverse economic conditions, including rising unemployment and loss in home values," the report said.

U.S. foreclosures top 1 million, report finds

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Change Nobody Believes In

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And tidings of comfort and joy from Harry Reid too. The Senate Majority Leader has decided that the last few days before Christmas are the opportune moment for a narrow majority of Democrats to stuff ObamaCare through the Senate to meet an arbitrary White House deadline. Barring some extraordinary reversal, it now seems as if they have the 60 votes they need to jump off this cliff, with one-seventh of the economy in tow.

Mr. Obama promised a new era of transparent good government, yet on Saturday morning Mr. Reid threw out the 2,100-page bill that the world's greatest deliberative body spent just 17 days debating and replaced it with a new "manager's amendment" that was stapled together in covert partisan negotiations. Democrats are barely even bothering to pretend to care what's in it, not that any Senator had the chance to digest it in the 38 hours before the first cloture vote at 1 a.m. this morning. After procedural motions that allow for no amendments, the final vote could come at 9 p.m. on December 24.

Even in World War I there was a Christmas truce.

The rushed, secretive way that a bill this destructive and unpopular is being forced on the country shows that "reform" has devolved into the raw exercise of political power for the single purpose of permanently expanding the American entitlement state. An increasing roll of leaders in health care and business are looking on aghast at a bill that is so large and convoluted that no one can truly understand it, as Finance Chairman Max Baucus admitted on the floor last week. The only goal is to ram it into law while the political window is still open, and clean up the mess later.

Change Nobody Believes In

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By Nathan Olivarez-Giles


The Obama administration's new plan to give a boost to small businesses reflects continued trouble in that sector, which is facing new failures even as much of the nation's economy is stabilizing.

As credit lines have shrunk and consumers have cut back on spending, thousands of small businesses have closed their doors over the last year. The plight of struggling firms has been aggravated by the reluctance of banks to lend money, said Brian Headd, an economist at the Small Business Administration's office of advocacy.

"While bankruptcies are up, overall, small-business closures are up even more," Headd said.

California has been particularly hard hit. The latest data show small-business bankruptcies up 81% in the state for the 12 months ended Sept. 30, compared with the previous year. Filings nationwide were up 44%, according to the credit analysis firm Equifax Inc.

The actual number of small businesses in trouble is probably higher, experts said, because many owners file for personal bankruptcy rather than seek protection for the business.

Small-business bankruptcies rise 81% in California

By Peter Whoriskey

The recession's jobless toll is draining unemployment-compensation funds so fast that according to federal projections, 40 state programs will go broke within two years and need $90 billion in loans to keep issuing the benefit checks.

The shortfalls are putting pressure on governments to either raise taxes or shrink the aid payments.

Debates over the state benefit programs have erupted in South Carolina, Nevada, Kansas, Vermont and Indiana. And the budget gaps are expected to spread and become more acute in the coming year, compelling legislators in many states to reconsider their operations.
Currently, 25 states have run out of unemployment money and have borrowed $24 billion from the federal government to cover the gaps. By 2011, according to Department of Labor estimates, 40 state funds will have been emptied by the jobless tsunami.

States' jobless funds are being drained in recession

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Bert Dohmen

Not too long ago, a billion dollars in a governmental budget was a lot of money. Then we got into hundreds of billions. People understood that this was a lot, just because of all the zeros. Now, unfortunately, the number has become small: the world "trillion," as in $1.2 trillion for health care reform, seems so tiny. But it has 12 zeroes behind it, which is so easy to forget.

If the government stays on the course it's been on for the past forty years without a radical change, the federal government will soon have a $10 trillion budget.

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YAHOO! BUZZ

In other words, the federal budget deficit will be $1.4 trillion. Just to make the size more visible, that's $1,400 billion.

Our colleague Rob Arnott, who always does terrific research, wrote in his recent report that "at all levels, federal, state, local and GSEs, the total public debt is now at 141% of GDP. That puts the United States in some elite company--only Japan, Lebanon and Zimbabwe are higher. That's only the start. Add household debt (highest in the world at 99% of GDP) and corporate debt (highest in the world at 317% of GDP, not even counting off-balance-sheet swaps and derivatives) and our total debt is 557% of GDP. Less than three years ago our total indebtedness crossed 500% of GDP for the first time."

Add the unfunded portion of entitlement programs and we're at 840% of GDP.

Trillions Of Troubles Ahead

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There Is No Way Out Of This Box....

by Karl Denninger

... that does not involve serious pain.

Go ahead folks - tell me how we can simply ignore this.

How we can pretend that the outstanding debt does not have to come back down to reasonable levels.

That these levels are "reasonable" - and that these rates of growth are "reasonable."

This is the "magic of compounding" writ large - and in a fashion that is going to inflict severe pain on our population - and the longer we wait to deal with it, the worse it will be.

Bernanke, who was at The Fed during Greenspan's time there, should have used his "education" - his claimed knowledge of economics - to make a lot of noise about this and demand that interest rates NOT be lowered to further encourage more debt-based consumption.

He did exactly the opposite.

As this decade wore on he should have sounded the alarm on our debt binge in all sectors, especially in the financial and consumer sectors where the growth in indebtedness has been the highest.

He did exactly the opposite.

Since this crisis began, in fact, every single government official who has spoken on the matter has emphasized even more lending, that is, cranking the amount of debt outstanding even higher, and The Federal Government has made good on their intent by, in the last year, spending more than $1.7 trillion dollars they did not have - that is, they borrowed even more.

There Is No Way Out Of This Box....

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by Client 9


Zero Hedge recently highlighted the TPG raid on CDOs.  This action puts into focus the alarming trend of the undermining of creditor rights.  When even the Courts are in on the gang bang, what hope do we have?

The battlefield: CDOs, mortgages, corporate debt
The players: hedge funds, management teams, elected officials, lobbyists, unions
The weapons: loopholes, new precedents, bankruptcy court, political pressure

The Chrysler debacle was stink enough, but the trend of collateral tampering is an outright stench today.  Property rights have allowed the U.S. to flourish.  They are bedrock of our economy.  They allow facilitate the spread of credit and economic growth that some other countries cannot match.

In Chrysler we saw legal precedent created where a *secured creditor* received less on its contracted collateral than unsecured creditors.  In one fell swoop, we saw fiduciaries abscond, “disinterested” advisors incented to rubber-stamp, and the Courts join in on the rubber stamping party (more on this later).  Most importantly, we witnessed a government that not only sanctioned this egregious behavior but astonishingly pushed for it.  The Government actually labeled those who filed objections to the deal as “terrorists” (you can’t make this up).  The Government actually vetoed Chrysler's offer to give secured creditors additional consideration.  Our lawmakers were so involved that Chrysler's own attorneys tried to block discovery of their communications with Washington (the attorney’s clients were Chrysler, not Washington).  We must never forget Obama’s alleged threat of using the “White House Press Core” to weaken what little opposition remained (who exactly were the terrorists?).

Brokedown Palace: The Undermining of Property Rights in America

Harder to buy US Treasuries

Zhou Xin and Jason Subler


IT is getting harder for governments to buy United States Treasuries because the US's shrinking current-account gap is reducing supply of dollars overseas, a Chinese central bank official said yesterday.

The comments by Zhu Min, deputy governor of the People's Bank of China, referred to the overall situation globally, not specifically to China, the biggest foreign holder of US government bonds.

Chinese officials generally are very careful about commenting on the dollar and Treasuries, given that so much of its US$2.3 trillion reserves are tied to their value, and markets always watch any such comments closely for signs of any shift in how it manages its assets.

China's State Administration of Foreign Exchange reaffirmed this month that the dollar stands secure as the anchor of the currency reserves it manages, even as the country seeks to diversify its investments.

In a discussion on the global role of the dollar, Zhu told an academic audience that it was inevitable that the dollar would continue to fall in value because Washington continued to issue more Treasuries to finance its deficit spending.


Harder to buy US Treasuries

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By Jeanne Sahadi

Here's a new way to think about the U.S. government's epic borrowing: More than half of the $9 trillion in debt that Uncle Sam is expected to build up over the next decade will be interest.

More than half. In fact, $4.8 trillion.

If that's hard to grasp, here's another way to look at why that's a problem.

In 2015 alone, the estimated interest due - $533 billion - is equal to a third of the federal income taxes expected to be paid that year, said Charles Konigsberg, chief budget counsel of the Concord Coalition, a deficit watchdog group.

On the bright side - such as it is - the record levels of debt issued lately have paid for stimulus and other rescue programs that prevented the economy from falling off a cliff. And the money was borrowed at very low rates.

But accumulating any more interest on what the United States owes at this point is like extreme sport: dangerous.

All the more so because interest rates will rise when private sector borrowers return to the debt market and compete with the government for capital. At that point, the country's interest payments could jack up very fast.

$4.8 trillion - Interest on U.S. debt

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By MARY WILLIAMS WALSH
Even as the biggest banks repay their government debt in what is being heralded as a successful rescue program, four troubled giants of the financial world remain on government life support.

These companies, the American International Group, Fannie Mae,Freddie Mac and GMAC, are not only unable to repay the government, they are in need of continuing infusions that make them look increasingly like long-term wards of the state.
And the total risk they pose to the taxpayer far exceeds that of the big banks. Fannie and Freddie, in the final days of the year, are even said to be negotiating with the Treasuryabout greatly expanding the money available to them.

Though the four are not in all the same businesses, they were caught in one of the same traps: They sold mortgage guarantees — in some cases to each other. Now when homeowners default, as they are doing in record numbers, these companies are covering the losses. Essentially, taxpayer money to these companies is being used partly to protect banks and other investors who own the mortgages.

4 Big Mortgage Backers Swim in Ocean of Debt

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