Saturday, September 26, 2009

How Many Marched in DC on 9/12? Close to 2 Million

according to Zac Moilanen of Indiana University.

New York Times said "thousands" marched.

Washington Post said "tens of thousands".

Japan's Nikkei said "one hundred thousand".

UK's Mail Online said "up to 2 million".

(Please see my original post on September 12 for more details.)

And the winner is.....

U.K.'s Mail Online. The author of the article below says it was somewhere between 1.78 million and 1.98 million.

If the author of the study is anywhere near correct, that was the largest-ever crowd descended on Washington D.C.

It goes without saying that the author and his paper are dissed thoroughly by Democratic supporters of the administration in the blogsphere (here's one). Mainstream Media (MSM) outlets either openly deride or simply ignore the "teabaggers".

I personally don't understand why being against the government's policies should be labeled "right-wing" or Republican. Liberals, conservatives, moderates, Dems, Republicans, libertarians, any citizen, should be against any wasteful use of their tax dollars by the government, and vigilant against any attempt to curtail personal liberty.

Critics seem to have latched on to Republican politicians and a conservative TV show host as if they were the chief instigators, instead of thinking of them as piggybacking on the movement that already exists and which has no apparent central organizing body. They want to find the bogeyman.

Entire Hearing on H.R. 1207 in House Finance Committee

on September 25, 2009. Historic, as Barney Frank says.

Here's the link to yesterday's entire full-committee hearing of H.R. 1207 in House Financial Services Committee.

I was impressed with the disciplined way that Chairman Barney Frank ran his committee when I was watching part of the hearing, but I now have some respect for him (which it hardly existed in me before) after hearing his opening remark. I missed it yesterday, as I caught only the last hour or so of the hearing.

Barney Frank started off by saying "This is a historic hearing." He noted that Ron Paul first filed this bill for the first time in 1983, and 12 years that the Republican Party control the agenda of the Committee they found no time for the hearing . He was pleased, in the show of bipartisanship, to be the one to give this important piece of legislation its first hearing ever.

Frank went on to state that the openness and transparency issue with the Federal Reserve was a bipartisan issue, and was not new; in fact, under Chairman Gonzales in 1983, the Committee succeeded in making the Federal Reserve more open. At that time, the meetings of FOMC were kept secret. The Federal Reserve denied even the existence of the minutes of the meetings, which happened to be found later in a drawer, Frank remarked.

Also (and that's where he gained my respect), he said in 2003 Ron Paul had been slated to be the chairman of the Domestic Monetary Policy Subcommittee, and that subcommittee immediately disappeared. It was merged into the International Monetary Policy Subcommittee. "There were people who wanted to shield the Federal Reserve from Mr. Paul's influence," Frank said.

Before he yielded to Ron Paul for his opening remarks, Frank expressed his concerns in proceeding with the legislation, which he had already expressed previously; that he didn't want to make the disclosure of the audit results interfere with the market in any way, and wouldn't want to allow any party from profiting from the Fed's moves (buying and selling in the financial market).

Well, many think that's been happening already anyway for quite a long time. He doesn't need to worry about that aspect, because that's what many large, influential financial institutions have already been successful in anticipating the Fed's moves and profiting from it, with or without insider knowledge.

I would love to know (on top of my head, for no particular order):

  • Where did the money go and how much, and how was it used, in foreign currency swaps;
  • Fed's relationship with primary dealers in stock, bond, and commodity markets
  • Detailed accounting for the TARP money that the Fed administered
  • What exactly is in the Maiden Lane portfolio and how they are valued
  • Physical gold audit (why is it priced at $42, anyway?)
  • Mark to market value of its assets (agency bonds, MBS, and all the "assets" that the Fed got in exchange for the various loans)
  • What are the "Other assets" on their balance sheet
  • Why they stopped disclosing M3
  • Detailed accounting of the ownership of the Fed (who exactly are the shareholders?)

Friday, September 25, 2009

Buy Health Insurance or Face a Jail Term

up to one year or $25,000 fine. Which would you like?

Politico's Live Pulse - Breaking news on health care fights has this juicy article:

Ensign receives handwritten confirmation
(Carrie Budoff Brown, 9/25/09 Politico Live Pulse)

"This doesn't happen often enough.

"Sen. John Ensign (R-Nev.) received a handwritten note Thursday from Joint Committee on Taxation Chief of Staff Tom Barthold confirming the penalty for failing to pay the up to $1,900 fee for not buying health insurance.

"Violators could be charged with a misdemeanor and could face up to a year in jail or a $25,000 penalty, Barthold wrote on JCT letterhead. He signed it "Sincerely, Thomas A. Barthold."

"The note was a follow-up to Ensign's questioning at the markup."

The handwritten note says this:

"Section 7203 of the Code provides that if there is a willful failure to file, pay, maintain appropriate record and the like, the taxpayer may be charged with misdemeaner with a penalty of up to $25000 or not more than one year in jail."

The "Code" the note refers to is Internal Revenue Code. Section 7203 is about "Willful failure to file return, supply information, or pay tax".

President Obama has said the penalty for not having an insurance is not a tax. Then why is his health care "reform" setting IRS, tax collecter, to hunt down the "violators"?

Pants on fire, Mr. President?

Bank Closures in September 2009

Georgian Bank in Atlanta, Georgia was closed by FDIC today, bringing the September bank closures to 11. This year, 95 banks have failed so far, compared to 29 in 2008.

Audit the Fed Hearing: Alan Grayson

"Has the Fed tried to manipulate the stock market?"

Rep. Grayson made the Fed general counsel very uncomfortable in today's historic hearing.

WSJ: Gore-Backed Car Firm Gets Large U.S. Loan

(Crony) Capitalism is alive and well.

Gore-Backed Car Firm Gets Large U.S. Loan
(9/25/09 Wall Street Journal)

"WASHINGTON -- A tiny car company backed by former Vice President Al Gore has just gotten a $529 million U.S. government loan to help build a hybrid sports car in Finland that will sell for about $89,000.

"The award this week to California startup Fisker Automotive Inc. follows a $465 million government loan to Tesla Motors Inc., purveyors of a $109,000 British-built electric Roadster. Tesla, like Fisker, is a California startup focusing on high-end hybrids, with a number of celebrity endorsements that is backed by investors that have contributed to Democratic campaigns.

"The awards to Fisker and Tesla have prompted concern from companies that have had their bids for loans rejected, and criticism from groups that question why vehicles aimed at the wealthiest customers are getting loans subsidized by taxpayers."

And the reason (or excuse) for giving $529 million taxpayers' money to a company who is going to make a high-end sports car in Finland?

"Matt Rogers, who oversees the department's loan programs as a senior adviser to Energy Secretary Steven Chu, said Fisker was awarded the loan after a "detailed technical review" that concluded the company could eventually deliver a highly fuel-efficient hybrid car to a mass audience. Fisker said most of its DOE loan will be used to finance U.S. production of a $40,000 family sedan that has yet to be designed." [emphasis is mine]

Yet to be designed family sedan. Also note the word "could". Money is fungible, Mr. Rogers. Or will the money given to the company refuse to be money unless it is spent for this yet-to-be-designed car?

For the rest of the article, please click on the link.

Audit the Fed Hearing Note (2)

(Latest at the top)

Hearing over. But Mr. Woods, that microphone is still live.

Rep. Royce: We're compounding the boom-bust cycle.

Mr. Woods: The Federal Reserve creates "moral hazard" because it can create money as much as they want. Why equity ratio is so low in the financial industry? Because they have the lender of last resort [the Federal Reserve].

Rep. Royce is citing the Richmond Fed's study that 40% of bad assets is backed by the Fed (?), and mentions "moral hazard".

Rep. Brad Sherman is asking about the loans that the Fed has extended and which the Fed hasn't disclosed the detail of the loans. Handing out risky loans on the concessionary term and tell the public "don't worry" doesn't seem like a good way.

Rep. Michele Bachmann is for tightening the scope of the Fed operation.

Someone was showing a U.S. dollar bill right behind Mr. Woods, and Rep. Watt and Chairman Frank told him to stop.

Chairman Frank is asking if the [audit] information should be made public instantaneously.

Rep. Ron Paul again.

Rep. Melvin Watt is insisting if Mr. Woods distinguish between the policy audit and the audit (opening the book), and saying the discussion is not of any substance.

Thomas Woods: we don't support any watered-down version of the bill. It would be the dignified way for the Fed if they simply accept the audit. Otherwise, people would increasingly wonder what the Fed may be hiding.

Audit the Fed Hearing Note (1)

(Latest at the top)

Thomas Woods of Ludwig von Mises Institute is the other witness.

Mr. Alvarez is done. The other witness is taking the seat.

Rep. Donald Manzullo is asking whether the Fed is monetizing money for helping companies like AIG.

Rep. Adam Putnam is listing off the items NOT disclosed about the Fed's operations and asking why.

Oh my goodness. This Californian Congressman (Rep. Edward Royce) cites Ludwig von Mises! [First I ever heard anyone other than Ron Paul cite von Mises.] The general counsel was saved by the Chairman Frank from answering the questions and embarrassing himself.

Rep. Alan Grayson made Mr. Alvarez, general counsel of the Board of Governors of the Fed, squirm, insisting to know whether the Fed has been manipulating the stock market and who specifically has been doing it.

Rep. Ron Paul asked about the potential Fed's manipulation in the gold market, and currency swaps with foreign central banks.

Audit the Fed

Ron Paul's H.R. 1207 is being heard in the House Committee on Financial Services, thanks to Barney Frank. It's a historical day, regardless of whether the bill will pass. 96 years after the Federal Reserve System came into being, Congress is finally debating whether to audit the institution that wields enormous power over the nation's financial and economic policies. It's about time.

You can watch the hearings on the Committee's website.

(By the way, the member of the Federal Reserve Board, who wrote the op-ed piece for Wall Street Journal to coincide with this occasion, was a member of the Working Group on Financial Markets , aka the Plunge Protection Team.)

Curious Op-Ed Piece by a Board Member of Federal Reserve

Why now? Inquiring mind wants to know.

Kevin M. Warsh is a 39-year-old former VP of Morgan Stanley and a current member of the Board of Governors of the Federal Reserve. He wrote an op-ed piece for Wall Street Journal, which was posted on September 24 for September 25 publication.

It is hard to believe he is 39 years old, for he writes as enigmatically as 83-year-old Alan Greenspan speaks (or used to speak).

The Fed's Job Is Only Half Over
(Kevin M. Warsh, 9/25/09 Wall Street Journal)

"Recent media stories have chronicled in great detail the events of the last couple of years. A pair of conclusions might be fairly drawn from these early drafts of history. One is that the financial-market turmoil of the last year proved to be of significant consequence to the economy. The second is that the Federal Reserve distinguished itself from historical analogues by taking extraordinary actions to address risks to the economy. Commentators, however, tend to disagree as to whether the extraordinary actions undertaken were to the good or the detriment of the U.S. economy in the long-run."

With this not so attention-grabbing opening, he drools on about how the Federal Reserve has done a good job but that this is no time to "declare victory". And I'm thinking "OK, what is your point?"

Then, he delivers, sort of, one of the points [emphasis is mine]:

"It is unwise to prejudge the Federal Reserve's policy strategy—or to declare the victor or the vanquished—by the split time, however notable it might be. We are at a critical transition period, of still unknown duration, and we must prepare diligently for an uneven road race ahead. If policy is not implemented with skill and force and some sense of proportionality, the success of the overall endeavor could suffer."

He seems to me to be saying, in crude language, "Don't ask questions. Leave it us, or you will suffer a consequence of your meddling."

Then he mentions "policy makers". At first, I thought he means legislators. But as I read the article, I now think he means "policy makers" at the Federal Reserve, because he starts to talk in first person.

"It also means that policy makers should acknowledge the heightened costs of policy error. The stakes are high, in part, because the policy accommodation that requires timely removal as the economy rebounds is substantial. And our policy judgments will ultimately prove worthy of the accolades, and tender the ultimate rejoinder to our critics, if we rise to meet this heightened responsibility. I am confident we will."

Tender the ultimate rejoinder to our critics? (He talks like Edward IV or his brother Richard III, last king of the House of York.) Is he challenging the supporters of H.R. 1207 (audit the Fed), which is slated to be introduced in the House Financial Services Committee on September 25?

A curious part comes in the last three paragraphs:

"In this environment, market participants and policy makers alike should steer clear of ironclad policy prescriptions. Nonetheless, I would hazard the view that prudent risk management indicates that policy likely will need to begin normalization before it is obvious that it is necessary, possibly with greater force than is customary, and taking proper account of the policies being instituted by other authorities."

Is he saying that the Fed will drain the liquidity sooner and faster than it becomes necessary? Even if that could threaten the market crash and economic crash? (Maybe that's why he, in the preceding paragraphs, cites history full of unintended and unfortunate policy errors?)

""Whatever it takes" is said by some to be the maxim that marked the battle of the last year. But, it cannot be an asymmetric mantra, trotted out only during times of deep economic and financial distress, and discarded when the cycle turns. If "whatever it takes" was appropriate to arrest the panic, the refrain might turn out to be equally necessary at a stage during the recovery to ensure the Federal Reserve's institutional credibility. The asymmetric application of policy ultimately could cause the innovative policy approaches introduced in the past couple of years to lose their standing as valuable additions in the arsenal of central bankers."

This to me is the most curious remark. The Fed would do "whatever it takes" at a recovery stage "to ensure the Federal Reserve's institutional credibility". The Fed would do it, not that it is necessary or it would help the recovery, but to ensure its credibility. Also the next sentence is interesting. He seems to be saying that if the Fed doesn't do "whatever it takes" in the recovery stage, it would lose those valuable weapons - various lending programs, buying securities that are not allowed by the Fed's charter (i.e. agency bonds and MBS), owning stakes in a private business (AIG), creating SIVs (Maiden Lane LLCs), "whatever it took".

"For those of us at the Federal Reserve, the task ahead involves longer days, but, in all likelihood, fewer weekends. While the undertaking is as challenging as any we faced in the preceding period, it is exceptionally well suited to the Federal Reserve's comparative advantages of deliberation, dispassion, and a determination to make judgments based on the long-term interests of the U.S. economy."

In 1913 when the Federal Reserve System was born, one ounce of gold was US$18.92. Today, one ounce of gold is $996. US dollar's purchasing power as measured by gold has dropped 95% since the Fed came into being. And that is the long-term interest of the U.S. economy?

Thursday, September 24, 2009

Sonic Weapon Against G20 Protesters

National Guard and Police are using tear gas and LRAD to disperse protesters at G20 in Pittsburgh. Welcome to new America, the change we can really believe in. It has really changed.

What is LRAD? It is "Long Range Acoustic Device" developed by American Technology Corporation for acoustic hailing and warning device (AHD). It is shown mounted on a vehicle, and you can hear the piercing noise. (The video clip was posted at

"According to the manufacturer's specifications, the equipment weighs 45 pounds (20 kg) and can emit sound in a 30° beam (only at high frequency, 2.5 kHz) from a device 83 centimetres (33 in) in diameter. At maximum level, it can emit a warning tone that is 146 dBSPL (1,000 W/m²) at 1 metre, a level that is capable of permanently damaging hearing, and higher than the normal human threshold of pain (120–140 dB). The maximum usable design range extends to 300 metres. At 300 metres, the warning tone (measured) is less than 90 dB. The warning tone is a high-pitched shrill tone similar to that of a smoke detector." (

In Pittsburgh, they are using the device for crowd control, the device that could permanently damage hearing. The United States government is using a military weapon against its own citizens. "Military weapon?" you may ask. Well here it is, a segment from Discovery Channel from 2005 "Future Weapons - LRAD".

Postal Gets A $4 Billion Break

In the last-minute wrangling in Congress to finish spending as much as they can before the new fiscal year starts, the U.S. Postal Service gets a $4 billion break.

A $4 billion bailout for the Postal Service? (9/24/09 Politico)

"The House voted Thursday to freeze Medicare Part B premiums for most elderly next year, even as Democrats moved to exempt the Postal Service from having to make $4 billion in payments due next week to cover retirement health benefits for its employees.

"The back-to-back actions reflect a flurry of last minute multi-billion-dollar fixes, often without warning, as the government approaches the new fiscal year beginning next Thursday, Oct. 1.

"At a meeting of House and Senate Appropriations Committee negotiators Thursday morning, the Postal Service language was incorporated into a stop-gap continuing resolution, or CR, that Congress must enact in the next week to keep the full government operations. As adopted, the postal agency, which now faces a liability of $5.4 billion due Sept. 30, would have to pay only $1.4 billion and would be allowed to effectively defer the remaining $4 billion until after 2017."

I fondly recall President Obama comparing the U.S. Postal Service to FedEx and UPS, when he was discussing the so-called "public option" or government insurance vs private insurance. If the public option is to be just as competitive and efficient and self-sustaining as the Postal Service, we (taxpayers) will have a problem. I don't think it's going to be mere $4 billion either.

$787B Stimulus a Success for Government Employment

Remember the $787 billion so-called stimulus package (the formal name is "American Recovery and Reinvestment Act of 2009") that was passed back in February, under a Presidential threat of "catastrophe"?

Well it has indeed stimulated something: government employment.

Stimulus funds boost number of federal jobs
(9/23/09 USA Today) [emphasis is mine]

"WASHINGTON — The $787 billion economic recovery package also is stimulating growth in the federal government as agencies hire thousands of workers and spend millions of dollars to oversee and implement the package, according to government records and spokesmen.

"Fourteen of the top federal agencies responsible for spending under the American Recovery and Reinvestment Act say they've hired about 3,000 workers with stimulus money. That's helped fuel the continued growth of the federal government, which increased by more than 25,000 employees, or 1.3%, since December 2008, according to the latest quarterly report. During that time, the ranks of the nation's unemployed increased by nearly 4 million, Labor Department statistics show.

"Overall, there are about 2 million federal workers, the data show."

Their tasks?

"The new workers are tackling such tasks as managing stimulus-funded contracts, processing Social Security benefit claims and investigating possible cases of fraud and waste. They're overseeing about $288 billion in tax cuts and nearly $500 billion in federal spending, much of it in the form of transfers to state governments for education, health care and jobless benefits."

And this is just "federal". Starting October, (which VP Joe Biden oversees) will start posting "job gains" in state and local level. Caveat emptor: reporting entities are not required to distinguish between the jobs created and the jobs "saved". They are to guess how many jobs would have been lost if it were not for the stimulus money.

Much like the Bureau of Labor Statistics does every month with their Birth/Death model.

U.S. to Post Reports on Stimulus Jobs Online
(9/23/09 Wall Street Journal) [emphasis is mine]

"WASHINGTON -- The administration next month will begin posting online reports on the number of jobs created and saved by the first tranche of funding in the economic-stimulus plan, part of an effort to ensure transparency in the administration of the program.

"But a Government Accountability Office report on Wednesday warned that the figures -- which would be supplied by recipients under the $787 billion program, including state and local governments -- might not be complete or totally accurate.

"Recipients won't be asked to differentiate between jobs created and jobs saved, officials said. They will have to give their best guess as to whether a job would have been lost had it not been for stimulus funding. They will also be allowed to use their own accounting methods, subject to federal government audits that are still being designed, said Recovery Act Implementation Senior Advisor Ed DeSeve."

I started thinking about a light bulb joke involving government officials and employees. I found several on the net. Here's my favorite so far:

Q: How many bureaucrats does it take to screw in a lightbulb?

A: Two. One tells the public that everything possible is already being done, and the other screws the new bulb into the water faucet.

Wednesday, September 23, 2009

Senate Health Care Reform Bill Will Be Voted On Only With A Summary

in plain English.

Oh and it will also come with a complete Congressional Budget Office cost estimate of the bill before a committee vote on the legislation. But that's all you'll get.

So says the Senate Banking Committee chairman Max Baucus, who also wanted to tax Q-tips and tampons so that the uninsured Americans (and soon-to-be Americans) can get the government insurance.

Committee Spars over Transparency of Health Care Legislation
(9/23/09 Wall Street Journal)

"The Senate Finance Committee kicked off debate on its health bill today by sparring over a Republican proposal that would require lawmakers to post the legislation three days before they vote on it.

"The committee voted down an amendment by Kentucky Republican Sen. Jim Bunning to make the final legislative language available on the committee’s web site for 72 hours before members of the committee can vote on it. But it adopted a modified version of the amendment, proposed by Senate Finance Committee Chairman Max Baucus of Montana, that requires the committee to post a plain-English summary with a complete Congressional Budget Office cost estimate of the bill before a vote on the legislation.

"In a back-and-forth that took up much of the morning session, Bunning and other Republicans argued that the legislation was too critical not to see the details before the vote. “It’s the most important bill I’ve seen in 24 years,” Bunning said. Americans also have been seeking details of the bill and should be able to see it too, he said."

How they take Americans for fools. Of course the devil is always in the details, not in a plain-English summary, and the Democratic chairman should know it full well.

Remember the antic that House Speaker Nancy Pelosi used when the climate bill (H.R. 2454) was very narrowly passed back in June? The official copy of the bill was missing 300 pages on the day of the vote, and the 1000-page bill was dumped on the lawmakers who cared to read 10 hours before the session was to open.

Austrian Economics Perspective on Boom and Bust

Ludwig von Mises wrote in Human Action, 60 years ago:

"The boom produces impoverishment. But still more disastrous are the moral ravages. It makes people despondent and dispirited. The more optimistic they were under the illusory prosperity of the boom, the greater is their despair and their feeling of frustration. The individual is always ready to ascribe his good luck to his own efficiency and to take it as a well-deserved reward for his talent, application and probity. But reverses of fortune he always charges to other people, and most of all to the absurdity of social and political institutions. He does not blame the authorities for having fostered the boom. He reviles them for the inevitable collapse."

(quoted in the article "The Deflating Bubble" by Douglas E. French, FREE Market newsletter Vol. 27, No. 6, June 2009 by Ludwig von Mises Institute)

Tuesday, September 22, 2009

FDIC Wants to Be Bailed Out

by banks, not by Treasury.

FDIC, whose DIF (deposit insurance fund) was meager $10 billion (see my post) at the end of June to cover close to $5 trillion deposits (and remember that was before the record bank closures in July and very costly closures in August. The fund must be very close to zero, if not negative already), wants to borrow money from the banks from which it collects deposit insurance fees.

FDIC could seek bailout from banks (9/22/09 AP via Yahoo Finance)

"WASHINGTON (AP) -- Regulators have approached big banks about borrowing billions to shore up the dwindling fund that insures regular deposit accounts.

"The loans would go to the fund maintained by the Federal Deposit Insurance Corp. that insure depositors when banks fail, said two industry officials familiar with the conversations, who requested anonymity because the plans are still evolving.

"Regulators also are considering levying a special emergency fee on all banks, charging regular fees early or tapping a $100 billion credit line with the U.S. Treasury, the officials said."

Let's say I am an insurance company. I insure your home, but times have been good and we are all prosperous so I will not collect insurance premiums from you for a decade. Don't worry nothing will happen. Then, Santa Ana wind blows and lightening strikes, and voila there's a massive fire in your area. Your home burns down. But I'll say, sorry, no money to give to you. In fact, I am broke. So I am going to borrow from you so that I can pay you and others. I'll pay you good interest on it, how about 25 basis points above the Fed funds rate? While I'm at it, I'll assess one-time emergency fee to replenish my insurance fund quickly. What do you say?

You would take me to court.

But wait, there is a possibility that this may be another disguised "rescue", actually, of big, national banks. There is also a possibility that this is a coordinated move with the Federal Reserve. Without the details known at this point, it is my pure conjecture. But here's what I see may be happening:

1st possibility: disguised "rescue" plan

FDIC would accept "loan" in the form of any type of asset from the big banks. Instead of cash or cash equivalent, the banks would give loans (of dubious quality) on their books as "loans" to FDIC, and FDIC would accept at face value and pay interest on the "loans" on top of it. (Where would that interest payment money come from?)

2nd possibility: coordination with the Fed to control excess reserves

The banks will create new loans to FDIC out of the excess reserves at the Federal Reserve. The Fed would be happy that the excess reserves are not escaping into the real economy to cause inflation. Banks would be happy that it would earn (probably) better interest than at the Fed, and their balance sheet get stronger with very safe loan to FDIC (ultimately backed by taxpayers). FDIC would be happy to have freshly minted money knowing it actually didn't cause much distress to the big banks anyway.

Just last month when FDIC issued the quarterly banking profile for the 2nd quarter (it is linked in my post), FDIC chairman Sheila Bair didn't sound much worried about the dwindling DIF, and kept repeating the mantra of "Our resources are strong. Your insured deposits are safe."

Dr. Doom (Marc Faber) Says "Buy Stocks"

because U.S. dollar will be worthless.

Marc Faber, of The Gloom, Boom and Doom Report, says there are money-making opportunities in stocks, by going long.

In his interview with Yahoo Tech Ticker,

"However, in the near term, Faber sees plenty of money-making opportunities in stocks. Sure, prices aren't as cheap as they were in March, yet he's confident, "in this environment cash will become worthless." As a result, he says investors are, "better off being in equities," for the next two to three years."

He sees value in energy and mining stocks, and some more:

  • Newmont Mining (ticker symbol: NEM)
  • Nova Gold (NG)
  • Chesapeake Energy (CHK)
  • Exxon Mobile (XOM)
  • Large-cap pharma like Pfizer (PFE), Johnson and Johnson (JNJ) as defensive play
  • Airlines including Thai Airways
  • Russian market
  • U.S. real estate

(If the video doesn't work (as the embed code keeps disappearing after I paste it!!), click on the link to Yahoo Tech Ticker here and view it at Yahoo.)

Monday, September 21, 2009

Something Brewing Again in Caucasus

Remember the tie-eating president of Georgia? In August last year, right on the day that Beijing Olympics started, Georgia began military maneuver in the autonomous region of south Ossetia, only to be swiftly and badly beaten back by Russia who was in the region as a peace-keeping force (thus the Georgian president's unusual diet).

Something is brewing there again right now, this time over another breakaway region of Georgia, Abkhazia. But whatever it is involves even wider region from Moldova to Azerbaijan that is neighboring Georgia and bordering Iran. The primary target, again, seems to be Iran.

Black Sea Crisis Deepens As US-NATO Threat To Iran Grows
(Rick Rozoff, 9/16/09 Centre for Research on Globalization)

"Tensions are mounting in the Black Sea with the threat of another conflict between U.S. and NATO client state Georgia and Russia as Washington is manifesting plans for possible military strikes against Iran in both word and deed.

"Referring to Georgia having recently impounded several vessels off the Black Sea coast of Abkhazia, reportedly 23 in total this year, the New York Times wrote on September 9 that "Rising tensions between Russia and Georgia over shipping rights to a breakaway Georgian region have opened a potential new theater for conflict between the countries, a little more than a year after they went to war." [1]

"Abkhazian President Sergei Bagapsh ordered his nation's navy to respond to Georgia's forceful seizure of civilian ships in neutral waters, calling such actions what they are - piracy - by confronting and if need be sinking Georgian navy and coast guard vessels. The Georgian and navy and coast guard are trained by the United States and NATO.

"The spokesman of the Russian Foreign Ministry addressed the dangers inherent in Georgia's latest provocations by warning “They risk aggravating the military and political situation in the region and could result in serious armed incidents.” [2]"

"In attempting to enforce a naval blockade - the International Criminal Court plans to include blockades against coasts and ports in its list of acts of war this year [5] - against Abkhazia, the current Georgian regime of Mikheil Saakashvili is fully aware that Russia is compelled by treaty and national interests alike to respond. Having been roundly defeated in its last skirmish with Russia, the five-day war in August of last year, Tbilisi would never risk actions like its current ones without a guarantee of backing from the U.S. and NATO." [emphasis is mine]

Remember the stock market crashed two months later last year. I'm not saying they were connected (although there are people who say they were). At least last year the Georgian conflict didn't blow up into a wider regional war involving Iran and Israel. This time, I'm not very sure.

Part of my uneasiness is the current U.S. administration under President Obama. Modus operandi of the administration seems to be to do everything all at once - blitzkrieg, or shock and awe - from economic "stimulus" (so far all it's stimulating is government spending) and cap and trade, health care "reform" to immigration reform to financial overhaul to global this and and that. Staying in Iraq and significantly increasing presence in Afghanistan and Pakistan. I wouldn't be surprised if they decide to open yet another front in Iran, because they think "they can".

The big arc connecting Romania/Bulgaria- Moldova - Ukraine - Abkhazia - Georgia - Azerbaijan - Armenia - Usbekistan - Khazakistan - Afghanistan - Pakistan, as described in the article, would seem like an effort to contain Russia as much as setting the stage for confrontation with Iran. Are we back in the days of Cold War? Then, I read this article today.

Zbig Brzezinski: Obama Administration Should Tell Israel U.S. Will Attack Israeli Jets if They Try to Attack Iran
(9/21/09 Political Punch, ABC News)

Brzezinski even invokes USS Liberty.

In the update section of the article, there is a curious piece of information: "Russian President Dmitriy Medvedev told CNN that Israeli President Shimon Peres assured him that Israel would not attack Iran."

(More on Medvedev's interview in Reuter's article here.)

Just recently, Israeli Prime Minister Benjamin Netanyahu made a secret trip to Moscow to meet with Russian Prime Minister Vladimir Putin.

And Mr. Putin met with the U.S. business leaders after Obama Administration ditched the missile shield in Eastern Europe.

Looks like "the Great Game" is still on, after all these years.

Fed Rejects Geithner Request for Study of Governance, Structure

and Ben Bernanke (after successfully campaigning for the second term) has been pushing his organization (Federal Reserve) hard as ready and fit to be THE regulator of the financial life of the entire nation (if not the world) and himself at its head to preside over commercial banks, investment banks, hedge funds, community banks and credit unions, insurance firms, credit card issuers, mortgage companies, and oh by the way consumers? Does that make sense to you?

Fed Rejects Geithner Request for Study of Governance, Structure
(9/21/09 Bloomberg)

"Sept. 21 (Bloomberg) -- The Federal Reserve Board has rejected a request by U.S. Treasury Secretary Timothy Geithner for a public review of the central bank’s structure and governance, three people familiar with the matter said.

"The Obama administration proposed on June 17 a financial- regulatory overhaul including a “comprehensive review” of the Fed’s “ability to accomplish its existing and proposed functions” and the role of its regional banks. The Fed was to lead the study and enlist the Treasury and “a wide range of external experts.”

"Some top central bank officials, after agreeing to the review, saw a potential threat to Fed independence after the Treasury released the proposal, two of the people said. The Obama plan said the Treasury would consider recommendations from the review and “propose any changes to the Fed’s governance and structure.”

"“It is not obvious at all why that is a Treasury responsibility or even appropriate why the Treasury would undertake that kind of study,” said Robert Eisenbeis, chief monetary economist at Cumberland Advisors Inc. in Vineland, New Jersey, and a former Atlanta Fed research director. “The Fed was created by Congress and it is not part of the executive branch.”" [emphasis is mine]


The Federal Reserve Act was indeed passed by Congress two days before the Christmas Eve in 1913 and signed into law by President Woodrow Wilson the next day. Needless to say, not all Congressmen and Senators were in town. It is indeed NOT part of the executive branch, it is not part of any branch of the government. It is a PRIVATE banking cartel owned by the member banks.

Particularly since September 2008 the Federal Reserve has been inseparable from the Treasury Department in executing the financial rescue plans, almost without any oversight. It has been acting as if they were part of the government. Now they want to hide behind Congress?

Not so fast. Here comes H.R. 1207, the bill by Congressman Ron Paul to audit the Fed. The bill has 290 co-sponsors as of today and Barney Frank, chairman of the House Banking Committee has said there will be a committee hearing on September 25, according to the Bloomberg article.

A very good summary of the structure of the current Federal Reserve System and how it is governed has recently been presented by person from an unexpected quarter, by the way: Neil Barofsky, special inspector general of Treasury Department to oversee the TARP program. The July 21, 2009 quarterly report to Congress from his office has a concise summary of the Federal Reserve System, from page 130 to page 136, including the table summarizing various loan schemes created by the Fed.

What Is Going on with Lehman Brothers?

Not with the company but the stock price.

Lehman Brothers still trades as a pink sheet, LEHMQ. The company has been in bankruptcy (Chapter 11) since last September. The stock, accordingly, was trading at 5 cents or less, with daily volume of a few million shares, until all of a sudden it went up 200% to 15 cents on August 28 with 73 million shares trading.

It is trading at 23 cents today, up 12%. It was up more than 20% earlier.

The move since late August is dismissed as nothing more than small, retail investors picking out the penny stocks hoping to win big to make up for the loss they have sustained in their investment.

Probably that is the case. However, I have this strange feeling that the firm may get resurrected. I have absolutely no proof, it's just my slight suspicion, probably irrational one, too.

If I am to plead my case for the Lehman resurrection, it is this recent post about two accountants discussing the unwinding of the unwindable derivative positions in Lehman Brothers London operation.

No major counterparty has come forward to settle their accounts with Lehman, after one year. Why? Maybe because their claims are not supported enough by documentation that would satisfy the bankruptcy judge? Instead of unwinding the positions so that the firm can be dissolved, might they end up keeping the firm intact with all remaining positions on its book, so that the counterparties are not harmed by the unwinding (if they owe Lehman)?

They may rather let Lehman Brothers exist as a "bad bank" that holds derivatives that have certain value but no one can figure out exactly what value and are unwindable. After all, Chapter 11 bankruptcy is for reorganization under the bankruptcy code.

Sunday, September 20, 2009

Solution to China's "Cancer Villages" Is Health Insurance??

and solution to economic crisis is welfare reform?

Reuters ran the article about the dire plight of Chinese peasants suffering debilitating and deadly disease (various forms of cancer) due to contaminated water from a state-owned mining operation nearby.

China's cancer villages bear witness to economic boom
(9/16/09 Reuters)

It's a heavy metal poisoning (cadmium, lead, zinc, etc) poisoning of the river that the villagers use for bathing and irrigation for rice crops, which are contaminated with heavy metals and which the villagers sell. They use well water for drinking, but the wells are all contaminated with heavy metals. How or why they continue to use the river water is totally beyond me, as it doesn't look like water. The article describes the water, "The river's flow ranges from murky white to a bright shade of orange and the waters are so viscous that they barely ripple in the breeze."

The article says this is the price that China is paying for its rapid economic expansion. It is indeed, as the Chinese government ignored the warning of environmental disaster from the developed countries as an affront to China's ability to grow. The government continues to ignore.

But what I want to focus on is the last part of the article about China's health care system (or lack thereof). I find it a bit odd to focus on the health care system when the first and foremost solution to be applied right away is to stop further contamination of water and soil immediately and start the remedial process. The very first thing that the government should do is to shut down the mining operation. Instead, the article says people continue to suffer because they don't have national health care safety net in the form of some kind of national health insurance scheme.


Then I heard on the BBC Radio (which by the way has started to churn out very good programs in business and finance, again) a program on China's consumers that made me suspect that the major U.S. financial institutions (such as Morgan Stanley) are working very closely with the Chinese government to lay out the infrastructure for nationwide health insurance program and other social safety nets.

Business Daily: China's consumers (9/16/09 BBC Radio)

The program is about China's export and domestic consumption, discussing how Chinese could be induced to save less and spend more. 9 minutes into the program, Stephen Roach, chairman of Morgan Stanley Asia is interviewed. He says China needs much greater stimulus for internal private consumption by building social safety net. Social security, private pensions, medical insurance, and unemployment insurance.

Coincidence? I don't think so.

U.S. financial institutions are very good at what they do - smell a big, big wad of money and pile on to the opportunity. What more lucrative than working closely with a government that virtually controls all aspects of the nation's social, political, and economic life (they are still Communists, remember?)? Instead of getting back the clean water and soil, the Chinese peasants in the Reuter's article would get a government-mandated health insurance. The premium would be paid by the peasants from their meager earnings, with no guarantee that they would get the medical treatment that they need as there is no infrastructure yet. But the government would have a huge chunk of money in the "social safety net" available for investment.

Morgan Stanley's Roach and the Chinese official interviewed right after Roach are in perfect agreement. The logic is that if Chinese people feel they are well protected by the government (social security, health insurance, unemployment insurance, etc.) they will spend more instead of saving more to take care of themselves in times of trouble.

So the world still faces the biggest economic recession since the Great Depression. The U.S.'s priority is health care reform. Japan's priority is climate change. China's priority is welfare reform.

I want to invest in a country where the economic recovery is the first priority in an economic recession. If there is such a country left, that is.