Tag Archives: Bank of America

Economics, The Mint

If the FED is the only Lender of US Dollars, the System has Collapsed

10/4/2011 Portland, Oregon – Pop in your mints…

The dust is beginning to settle after what must have been a tense weekend for bank execs on both sides of the Atlantic.  We can only imagine that banks pulled out all the stops to somehow make their numbers for the third quarter end.  In a practical sense this meant putting the stranglehold on equity and commodity positions and hanging on to dollars with all their might.

The vacuum action in the dollar funding markets was so extreme that at one point it was rumored that US dollar funding for banks in Europe was apparently non-existent.  We speculated that banks were holding on to cash in the absence of clear direction from the Eurozone as to how they intend to bail out their large institutions and governments.

The action looks like a sumo wrestling battle royal on the edge of a cliff.

The FED came to the rescue and re- opened its swap lines with European banks to provide dollars and avoid widespread panic.  According to a report that we saw from Bloomberg, the FED had gone from its role as the lender of last resort to a role as the lender of ONLY resort.

We left off with a question which we will consider today:

Does the fact that the FED is the only institution willing to lend dollars indicate that the US Dollar system has technically collapsed?

On the surface, it would appear that the evidence points to just the opposite.  The US Dollar index has gone through the roof which would indicate a preference for dollars, making them more valuable.  Doesn’t this prove that the US Dollar is alive and well?

Bernanke Readies his Helicopters

Were the Dollar backed by something real, the above would be true.  However, in the current, insane, “Debt is Money” currency regime, it tells us quite the opposite.  The fact that the Federal Reserve, the creator of the current version of the US Dollar, is the only institution willing to lend said Dollars is in fact evidence that the system has failed.

It has failed because it is no longer self sustaining.  The willingness to take on new debt, which is the life blood of a debt based currency regime, is non-existent.  The usurers need fresh blood in order to sustain themselves and finding no new victims, are beginning to feed on each other.

Financial Institutions are attempting to hoard dollars on a net basis.  Instead of lending them to productive enterprises, they are paying down their dollar denominated liabilities.  In other words, the productive classes have begun to shun the dollar on a net basis and the ultra leveraged financial sector is beginning to vaporize as the productive debts are cancelled.

Financial institutions see this vaporization taking place at their counterparties and are unwilling to extend them credit on any terms.  The financial institutions which cannot meet their day to day funding requirements then turn to the Federal Reserve to lend them the Dollars necessary to meet their commitments.

The inter day funding action has, in effect, become a high stakes game of musical chairs.

While musical chairs is fun to watch, it is not evidence in and of itself of the collapse.  The evidence of the collapse emerges as we fix our gaze on the logical end of this vicious feedback loop.  The logical end is this:  The Federal Reserve ends up holding every worthless paper asset on the planet on its balance sheet which theoretically backs the dollars which it is emitting in exchange.  The banks, which are left with the dollars as their own “paper asset” and the Federal Reserve are left with staggering liabilities which they pass back and forth as investors, businesses, and consumers increasingly shun their paper.

For the moment, the world may have reached a peak in monetization, and the FED’s money machine is now backing up as the sewage of every bad loan on the planet begins to flood their balance sheet.

It is getting ugly.  How ugly?  So ugly that Bank of America’s website has been down for three straight days, presumably for technical reasons but avoiding an online bank run and forcing customers to pay $8 to bank at the branches come to mind as compelling technical reasons for a website failure.

Meanwhile, Europe is having their own “TARP moment” as Slovakian resistance is sure to be swiftly dealt with.  We know where that will lead.

Yes, the end of the insane system is approaching.  It won’t be long now until the authorities pull out their ultimate trump card, a wholesale change of the currency.  With nearly every government and bank on the planet heading to the poorhouse, it is the only trick that the currency regime has left.

Don’t fall for it, fellow taxpayer, for it too shall fail.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for October 4, 2011

Copper Price per Lb: $3.05
Oil Price per Barrel:  $78.31

Corn Price per Bushel:  $5.88  
10 Yr US Treasury Bond:  1.78%
FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,624 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.4%!!!   UP UP UP!!!
Dow Jones Industrial Average:  11,011  

M1 Monetary Base:  $2,052,100,000,000 RED ALERT!!!
M2 Monetary Base:  $9,511,300,000,000 YIKES!!!!!!!

Economics, Portland, The Mint

Ode to the Auto Feo, Part V – The Bitter End

9/1/2011 Portland, Oregon – Pop in your mints…

With the markets relatively calm until the sparks fly later next week, we conclude our tale.  Our tale is, among other things, a recount of the recent history of Bank of America wrapped up in a vehicle metaphor:  “Ode to the Auto Feo,” originally inspired by the recent passing of a vehicle that taught us many valuable lessons.

You can catch up with the “Ode to the Auto Feo”, Parts I,II, III, and IV by clicking on the following links. 

Ode to the Auto Feo, Part I –  The Birth of a “Need”

Ode to the Auto Feo, Part II –Optimism and Desperation are Poor Bedfellows

Ode to the Auto Feo, Part III –Lemon Discovery

Ode to the Auto Feo, Part IV – Acceptance and Admiration

Our story continues:

After careful reflection, we could see that our reasons for adopting the fateful “gasoline only” policy in the Auto Feo were two-fold and that they reflected two of our character traits which, taken individually are admirable, yet when combined, can lead to terrible decision making.

The first and most obvious of these traits is frugality.  While we do not think of ourselves as especially frugal, we do tend to choose certain items or activities upon which to focus our frugality.  This focused frugality in and of itself can prove extremely useful where investments in proven strategies are concerned.

The second, perhaps less obvious, trait which was expressing itself in this decision was our sense of adventure.  This trait can prove extremely useful when there is something to be gained from the undertaking and adequate margin for error for the undertaking’s failure. 

The terrible decision, then, comes when we combine this sense of adventure, which, we repeat, requires ample margin for error, with our frugality which, by definition, does not provide for any margin of error.

Hence, in retrospect it was obvious that adopting the gasoline only policy in the case of the Auto Feo was a terrible decision.  The only thing to be gained was sheer entertainment value reaped by those unaffected by the decision, a group that you, fellow taxpayer, are happily a part of.

Now that we understand the motivation for such a decision, we offer you the inspiration.

We were inspired by the desire to avoid buying a quart of oil each week (frugality) and, by extension, to avoid further staining our driveway with oil spilled out of the engine block.  To accomplish this, we discovered (or perhaps imagined) an experiment that the military had conducted in which they had never put oil in new vehicles and had been able to rely on the resulting engine shavings caused by the friction to serve as a sort of permanent lubricant for the pistons as they slammed up and down in the engine block.

Now most sane persons and certainly those who are mechanically inclined will quickly realize that there is a big difference between our situation with a 17 year old vehicle which held two quarts of oil and the military who had new vehicles which had never been filled.  There was also a big difference in our respective circumstances.  The military could afford to lose a few vehicles to this sort of experiment.  We, on the other hand, would be walking if it did not pan out.

The experiment began with promising results.  The vehicle’s performance, which was not that great to begin with, deteriorated only slightly.  This did not concern us as.  After all, we only had 1.5 miles to drive each day.  We continued through rain and shine, confident that we were actually on the verge of improving the Auto Feo’s performance and significantly extending its useful life.

Like so many of today’s fiscal and monetary policies, the delusion of sustainability was to be, uh, sustained until the day it came to a catastrophic end.

Six more months passed and two things happened in quick succession.  One turned out to be an omen, while the other an illusory victory.

The omen appeared one late Spring evening when we came upon the Auto Feo in the parking garage on our return commute to find that the driver side window had been shattered and the vehicle’s contents, which consisted of a Bible and a pair of jumper cables, had been clumsily rifled through.  The thief took the jumper cables.

With the bi-annual emissions test that is required in Oregon just one week away, our frugality again kicked in and we resolved to use clear plastic and duct tape to temporarily replace our driver-side window until we could be sure that the vehicle would be cleared by the authorities to operate another two years.

Note to self:  If you need to cover a broken out window in a vehicle, make every attempt not to use opaque or transparent plastic.

We hobbled along for a week of near misses at intersections with limited visibility out of our driver’s side.  On a Saturday, we made the trek to Hillsboro to submit the Auto Feo to the automotive equivalent of a colonoscopy.

Arriving at the emissions testing center, we found ourselves apologizing unnecessarily for the condition of the vehicle and explaining that we wanted assurance that Oregon’s green gods would allow the vehicle to continue to operate on the roads of their realm.

“We wanted to see if it would pass before fixing the window,” we offered.

“Looks like its seen better days, let’s take a look,” said the attendant.

She was apparently unfazed by the appearance of the vehicle and we later thought that apart from these people, only body shops and junkyards see more pathetic looking vehicles on a regular basis.

We winced as we watched the attendant place the probe into the Auto Feo’s tailpipe and had to remind ourselves that it was not human.

“Looks like it failed,” said the attendant.  “But it did improve at 2,000 RPMs,”

“Can we give it another try?” we offered in a desperate last ditch effort to forestall the diagnosis.

“Why not?” said the attendant.

And then a miracle occurred.  The Auto Feo passed the emissions test.

We joyfully drove home and quickly arranged to have the driver’s side window replaced.  Our experiment was going swimmingly and the emissions test somehow validated our hypothesis.  The military was right, we are better off not adding oil to your vehicle!

The Bitter End - Rest in Peace Auto Feo

Our delusion, which was now government sanctioned, was allowed to carry on.

Astute readers will quickly draw a parallel between our Auto Feo tale and Bank of America and the current banking system in general:  Our emissions test is a metaphor for the so-called stress tests that have been run on the banks in America and Europe in an attempt to shore up confidence.

When will these delusions end?

In the case of the Auto Feo, two short months after the government sanctioned emissions test gave it the green light, we were forced to make a journey farther than our normal 1.5 mile daily jaunt.

Through knocks, heaves, and roars, the Auto Feo dutifully carried us on our route until, a mere .5 miles from home, the Auto Feo froze up.

We feared the worst but in our optimism we had the vehicle towed to our house.  We waited for the morning.

The next morning, it started!  This truly was a miracle.

Alas, the miracle was that the Auto Feo was simply saying goodbye.  For in the evening, when we jumped in to drive it home, the Auto Feo did not immediately respond.  A brief heave was all it could muster as we cranked the starter.  And then, all was silent. 

Our experiment was a failure, the Auto Feo had passed on.

Bank of America has been in the news a lot lately, and for all the wrong reasons.  The behemoth is too big to succeed and for every client that is making money, there seem to be two or three who are going bankrupt, leaving B of A to foot the bill.

Although management will never admit it, the Bank is now throwing Hail Marys late in the fourth quarter in a desperate attempt to raise capital.  While this is exciting to watch, you probably don’t want to put your money on the team who has resorted to such a desperation tactic.

Returning for one last, painful look at our automobile metaphor, It appears that the FED has decided not to change the oil (i.e. replace member banks’ worthless assets for fresh cash) and the banks will be left to lubricate their engines with the metal shavings as its worthless assets disintegrate on the balance sheet.

How long until B of A seizes up?

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for September 1, 2011

Copper Price per Lb: $4.15
Oil Price per Barrel:  $88.71

Corn Price per Bushel:  $7.29  
10 Yr US Treasury Bond:  2.15%
FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,825 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.5%!!!   UP 0.7% IN ONE MONTH, 8.4% ANNUALLY AT THIS PACE!!!
Dow Jones Industrial Average:  11,494  TO THE MOON!!!

M1 Monetary Base:  $2,108,800,000,000 RED ALERT!!!
M2 Monetary Base:  $9,473,600,000,000 YIKES!!!!!!!

The Mint

Ode to the Auto Feo, Part IV – Acceptance and Admiration

8/29/2011 Portland, Oregon – Pop in your mints…

It was another beautiful weekend here in the Northwest, safely away from Irene and all of the mayhem that it has left in its wake.  Summer arrived a bit late this year and, like recent stock market rallies, has had trouble gaining traction.

One must be content with the days of sunshine that come our way, for our instinct tells us that they will not last.  For us here in the Northwest, that means days of sunshine must be enjoyed to the fullest.  In the stock market, it means that any near term rally should be seen as an opportunity to sell.

In the long run, as the wheels come off the US Dollar mobile, stocks should outperform most other paper assets.  In the short run, with Bank of America imploding, the resulting black hole threatens to suck a few trillion dollars out of the stock market.

Bank of America is too big to succeed and is in a hurry to raise capital that they do not need.   Given the incredible incentive that most Bank Executives have to misrepresent their circumstances, it is a wonder that investor would take them seriously.  Anyone who is not obligated to hold B of A stock and is still holding it is performing an act of charity, for that money will go quickly down the drain.

But enough about B of A, we have a story to tell.

That story is the sordid tale of the Auto Feo.  You can catch up with the “Ode to the Auto Feo”, Parts I,II, and III by clicking on the following links. 

Ode to the Auto Feo, Part I –  The Birth of a “Need”

Ode to the Auto Feo, Part II –Optimism and Desperation are Poor Bedfellows

Ode to the Auto Feo, Part III –Lemon Discovery

Our story continues:

We arrived at home much later than we imagined.  What should have been a brief run across town to kick the tires on a vehicle that we should have passed on had now become a frustrating and humiliating odyssey.  We were stuck with a car that seemed doomed to be scrapped within the week.  Our only consolation was that we had “only” dropped $1,300 on this bitter lesson.

We drove the overheating, smoking beast into our driveway.  We were dripping with sweat as we were forced to turn the heat on in a desperate attempt to moderate the vehicle’s temperature as the thermostat was not performing its designated function.

Still, our ever supportive wife was optimistic:

“It only needs to make it the 1.5 miles each day,” she reassured us.

“And it has air-conditioning!”

She appeared as sold on the vehicle as we were until the smoke, which we were later to identify as oil leaking from the engine block onto the exhaust system, began to fill the thick summer evening air.

The smoking of the Auto Feo produced a dry ice effect coming out of the hood on the passenger side which we were never able to repair (the only attempt the mechanic made served to make it worse.)

Then, she saw the keyhole, or lack thereof.  She shook her head.

“You say you didn’t notice this?”

All we could do was shrug.  It was an oversight of classic proportions, like forgetting to make gravy for Thanksgiving dinner.  There was no reasonable excuse that could be offered.

Her look confirmed what we had now known for about 90 minutes, we had been taken.

What could we do?  Given the discovery of the oil leaking and the lack of the keyhole, we deemed the vehicle unacceptable.  We had to attempt the unthinkable.

“We will humble ourselves and ask the Iranian to undo the deal,” we proclaimed, as if the matter were firmly under control.  Swallowing one’s pride seemed preferable to seeing a testament to our own ignorance and impatience in our driveway.

We will spare you the details of our three telephone calls to the Iranian that ranged in tone from bold appeals to the man’s honor to tearful groveling.  True to form, He out-groveled us and admitted that the cash had gone to his brother that fateful night.

We were stuck.

A Unique Vehicle - The Discovery of a James Bond Smokescreen

The next two weeks served to confirm that we had just made the worst purchase in recent memory.  In addition to the inconvenience of entering the vehicle from the passenger side and the permanent smoke screen that the vehicle threw off as it drove:

-We experienced random starter issues (i.e. the vehicle started or failed to start completely at random)

-The cherished air conditioner broke in a plume of smoke on 3rd day,

-After 7 days, the odometer stopped turning, which explained how a 1993 could have a mere 143,000 miles.

Still, the vehicle ran and served its purpose of carting us to and from the train station, a mere 1.5 miles down the road, and even though the starter worked only when it chose to, it rarely failed to start the motor after teasing us for a time.

With the initial bad taste out of our mouth, a strange sort of respect began to grow between ourselves and the mistreated vehicle.

“Just give us 12 months,” we told the trusty steed, which was obviously on its last legs.

Somehow, it seemed to understand, and six months passed without incident.

At that point, we decided to embark upon a dangerous experiment, an experiment that in hindsight was so ridiculous that it made even B of A’s robo-signing of foreclosure documents seem reasonable by comparison. 

We decided to put an end to the annoying smokescreen the vehicle threw off the cheapest way we could think of.  From that point forward, the only fluid we would put into the Auto Feo was gasoline.

Like B of A’s robo-signing adventure, it was bound to backfire.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for August 29, 2011

Copper Price per Lb: $3.97
Oil Price per Barrel:  $87.63

Corn Price per Bushel:  $7.56  
10 Yr US Treasury Bond:  2.27%
FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,789 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.5%!!!   UP 0.7% IN ONE MONTH, 8.4% ANNUALLY AT THIS PACE!!!
Dow Jones Industrial Average:  11,539  TO THE MOON!!!

M1 Monetary Base:  $2,040,500,000,000 RED ALERT!!!
M2 Monetary Base:  $9,498,800,000,000 YIKES!!!!!!!

Economics, Portland, The Mint

Ode to the Auto Feo, Part III – Lemon Discovery

8/25/2011 Portland, Oregon – Pop in your mints…

Oh Bank of America, how far you have fallen.  Today, B of A took a hand out that they allegedly do not need from Warren Buffett’s group.  For this ‘unnecessary’ $5 Billion of capital, B of A is paying 6% per year, a higher rate than many Americans are paying on their mortgages.

What a brilliant move, and one that should give equity holders just enough time to get out while they still have some pocket change left.  Brilliant for Buffett, we mean.  For B of A shareholders, it is simply the latest bungle by management who are naturally overwhelmed by the sheer magnitude of the bank’s compost pile that it calls a balance sheet.

Like a compost pile, B of A’s assets should be allowed to disintegrate and be spread around organically to provide fertilizer for enterprises that actually contribute wealth to society.

In its current state, B of A as an entity is not only cannibalizing itself and its shareholders, but also nearly anyone that it comes into contact with.  As such, the term’s of Buffett’s deal have allowed him to go into the toxic mix with a biohazard suit on.  Berkshire should be shielded from the eventual collapse, albeit as a secured creditor.

But enough of B of A’s present woes, we have been relating a personal anecdote which may help readers understand the origins of what will be a spectacular slow motion collapse of B of A. 

At a minimum, we hope you get a laugh at our expense.

You can catch up with the Ode to the Auto Feo, Parts I and II by clicking on the following links. 

Ode to the Auto Feo, Part I –  The Birth of a “Need”

Ode to the Auto Feo, Part II –Optimism and Desperation are Poor Bedfellows

Our story continues:

We climbed into what our delusional mind had now identified as a BMW X5 smiling from ear to ear.  No, it was not perfect but the vehicle was powerful.  It felt like it was reliable and had been well cared for.  Heck, the A/C even worked and had recently been charged!  We were feeling extremely good about our purchase.

That feeling was soon to pass.

No matter that the Iranian had us call his brother to let him know we were purchasing the car.  Presumably it was to arrange a ride home but in retrospect it appears that there was a “family” debt that needed to be settled and the proceeds from the sale were of great interest to the brother.

For our part, we had to call our brother in law to arrange a ride home.  We drove our find back to Portland from Gladstone to pick him up, still in awe of our good fortune. 

Then, it began to fall apart.

The Illusion is Shattered

Not literally, of course, but the mental construction of the BMW X5 and more importantly the vehicle’s reliability were quickly demolished as we watched the oil pressure drop, the check engine light go on, and the temperature gauge quickly approaching the red line.

“What is going on?  This car was working flawlessly until now…”  We thought to ourselves.

“Are we seeing things?”

Our mind attempted to pass it off as an optical illusion.  After rubbing our eyes and focusing our mind, we turned off the A/C and reluctantly turned on the heater on that warm summer evening in a vain effort to regulate the temperature.

Then the car stalled.  In vain, our mind made another attempt, an appeal to the supernatural.

“Perhaps the car is possessed,”

We dutifully exercised our authority in Christ to cast out demons from the lifeless mass of the Isuzu.

The Isuzu, for we would never again see the vehicle through our rose colored glasses, started up and again we were off, albeit at a slower pace and with the heater running.

When we arrived at his house, we were concerned.  Maybe this car wasn’t worth $1,300.  Maybe it is just scrap.  Even so, we held to the hope that, if we could just get the vehicle home, it would serve its purpose to take us the 1.5 miles necessary for our daily commute.  We let the car cool off.

Upon exiting the vehicle, we noticed a small but very important defect that had escaped our eagle eye during the inspection:  The driver side door’s keyhole was a hole, as in, there was space where one would normally expect to insert the key. 

Now we were flabbergasted.  All of the other defects were somehow excusable because for the most part they had been invisible and had for whatever reason not manifested themselves during our inspection.  This one, under the circumstances, was humiliating.

Oh, how we wish we had heeded the spousal veto!

We went to the front door of our brother in law’s house a mere shadow of the conquering hero we had been just 30 minutes before.

We felt we had just thrown $1,300 down the drain.  It was not so much the sum that bothered us as the fact that we had allowed ourselves to become enamored with the vehicle and in the process had allowed ourselves to be blinded to its obvious faults.

After twenty minutes chatting with our sister, enough to let the vehicle cool down, we were off to Gladstone.  The sun had long since set and the blackness matched our darkening mood.

Our brother in law attempted to cheer us up. 

“This is a great car!  You don’t really need the lock on the door and once you get it home, it should serve its purpose.”

His words of encouragement sustained us for the next painful part of our all night journey, bringing home our error in judgment to show to our loving, supportive, and rightfully skeptical wife.

We doubt such fear struck the board of Bank of America as they reported Countrywide Financials mortally wounded loan portfolio to their shareholders for the first time.

 Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for August 25, 2011

Copper Price per Lb: $4.08
Oil Price per Barrel:  $85.06

Corn Price per Bushel:  $7.30  
10 Yr US Treasury Bond:  2.24%
FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,759 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.5%!!!   UP 0.7% IN ONE MONTH, 8.4% ANNUALLY AT THIS PACE!!!
Dow Jones Industrial Average:  11,207  TO THE MOON!!!

M1 Monetary Base:  $2,033,000,000,000 RED ALERT!!!
M2 Monetary Base:  $9,478,200,000,000 YIKES!!!!!!!

Economics, Portland, The Mint, Uncategorized

Ode to the Auto Feo, Part II – Optimism and Desperation are Poor Bedfellows

8/24/2011 Portland, Oregon – Pop in your mints…

Today we will continue the saga of the auto feo.  If you missed part I, please click here to get up to speed.  It shouldn’t be difficult as the auto feo is currently at a dead stop.

But first, a quick look at the markets.  At this point in the day, everything appears to be literally on hold until the FED chairman Ben Bernanke speaks at Jackson Hole.  What will he say?  Our guess is not much.  Perhaps some dribble about standing prepared with all necessary tools to fight deflation.  If He were truly to use his post for something useful, He would encourage Congress to recapitalize US households, not banks.

Speaking of banks, Bank of America seems intent on claiming that they are in no need of capital even as they sit on $2 Triilion in assets of an imploding economy.  B of A made perhaps the worst choices of all time when they paid a premium for Countrywide and Merrill Lynch.  They may not have had much choice in the matter given the carte blanche that regulators had during the panic of 2007-2008.  Whatever the case, they are now choking on the sewage of the above mentioned entities.

Citigroup, on the other hand, may need another reverse split sooner than they think.  With that said, we return to our personal story of a bad acquisition.

We left our story yesterday arriving at our rendezvous with the then owner of what would soon become our next “Auto Feo.”  As we pulled into the parking lot of a large supermarket, nature called.  Not seeing the vehicle which we were to inspect, we entered the supermarket to tend to our personal needs.  As we were exiting the supermarket, we received a call from the owner, announcing his arrival.

Our pulse quickened.

We exited and there it was!  A black beauty of an SUV.  At that moment, as the sun began to set over the horizon, the 1993 Isuzu looked like a late model BMW X5.  We were about to make the bargain of the century.

Astute readers will note that what we saw that evening was a mirage, born out of the dangerous mix of optimism and desperation that was moving in our body to inhibit our ability to make an informed decision.  We can only assume the same was true when B of A was looking over Countrywide Financial in late 2007.

We met the man, an Iranian, who promptly handed us the keys as we hopped in for a test drive.  As the engine roared to life, we were able to overlook the cracks in the windshield and somewhat soiled interior.  After all, it is a ’93, we thought.

As we proceeded around the block, never exceeding 40mph, we were impressed.  “This is a solid vehicle,” we complimented the owner.

A Solid Vehicle Indeed!

“Yes,” he replied, “we purchased it from a family friend and it has been our family car for five years.  We have maintained it and most recently replaced the clutch.  It was very expensive.  In Iran, a clutch costs you $200, here, $800.  We have a better car now.”

A new clutch!  We thought.  What a steal.  We bonded with the man as we spoke of our children and family life.  This was no longer a negotiation, it became a matter of honor.  As we parked the vehicle, there was only one hope for us.

The spousal veto.

For those of you who have never been married, this is commonly known as “running the idea by our wife,” which in most cases can save one from making a bad decision or fending off persistent salesmen.

Excusing ourselves, for it seemed an unnecessary step when we were obviously getting a BMW X5 for a mere $1,350, we made the call. 

Our wife was predictably skeptical. 

“Don’t you want to see other options?” 

We assured her that this was the best deal out there. 

“It’s not that urgent, come home and sleep on it and see how you feel about it in the morning.” 

Out of the question, I did not want to waste another trip to Vancouver or Gladstone just to pass on a car.

Again, astute readers will recognize this last objection as the sunk cost fallacy.  We, of course, did not.

“Well, if you are sure…”

And with that, our loving, ever supportive wife relenting gave her approval of the purchase and the deal was done.

We went back to the Iranian and, with an unintentional pause before speaking, extracted a $50 reduction in the vehicle’s price.

At $1,300, the deal was done.  And almost immediately, our problems began…

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for August 24, 2011

Copper Price per Lb: $4.01
Oil Price per Barrel:  $85.72

Corn Price per Bushel:  $7.31  
10 Yr US Treasury Bond:  2.25%
FED Target Rate:  0.09%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,753 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%  EASIEST MONEY EVER COMING IN JAN 2012!!!
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.5%!!!   UP 0.7% IN ONE MONTH, 8.4% ANNUALLY AT THIS PACE!!!
Dow Jones Industrial Average:  11,232  TO THE MOON!!!

M1 Monetary Base:  $2,033,000,000,000 RED ALERT!!!
M2 Monetary Base:  $9,478,200,000,000 YIKES!!!!!!!

Daily Default, Economics, The Mint

Oh My, The Giant Snowball is now Rolling Down Hill, can the Central Banks Stop it?

8/8/2011 Portland, Oregon – Pop in your mints…

Oh my.  Two words, four meager characters, made famous by Jesse “The Body” Ventura during his ringside blow by blow commentary in the glory days of the WWF (circa 1986).  These words, which so eloquently summed up the effects of a pile driver, seem strangely appropriate to describe what is occurring in equity markets around the globe during their first chance to “react” to the S&P downgrade of the US Government’s sovereign debt rating.

As we write, the Dow is down 5%, ditto for Oil.  Gold is up over 4% and the downgraded bonds of the US Government of the 10 year variety are up (in other words, yields have fallen) approximately 4%.

What is going on?  We will give you a clue, Bank of America (BAC) is down almost 20% on massive volume.

Still guessing?  We won’t keep you in suspense.  This downgrade, whether deserved or not, early or late, is wreaking havoc with mutual fund investment policies which call for excess funds to be held in AAA rated debt.  There are not enough German bunds or UK gilts in circulation to pick up the excess funds gushing out of Treasuries.

The obvious implication is that USD bank deposits should rise.

More deposits that it can’t lend at a profit would tank behemoths like B of A, and Uncle Sam may have trouble saving it.  That, and B of A is being sued for fraud, again.

Enough of B of A, back to the money flying out of US Government obligations by investment policy edict.  Where will this money go?  That is what is currently being sorted out in the markets.  And at the moment it is UGLY for equities on a global scale.  Don’t worry, by late next week, so much money will be pumped into the system that equities will have no choice but to rise.

We can’t help but think back to this chart (BELOW) showing the proliferation of AAA debt in the world.  It seemed as if it was everywhere, like pine trees in a forest.  Now, with one simple action, those who trust S&P’s judgment (which history has show is at one’s own peril) find themselves with at least $14 Trillion less AAA issues to choose from.  More, if you count the implied downgrades of government agency and other government guaranteed debt.

"AAA" Government dominates the market and it is beginning to smell funny!

Stepping away from the technicalities of investment policies and looking at the downgrade in a philosophical sense, it is like a minor earthquake that triggers a tsunami that the financial world is now helplessly watching roll ashore, or like a giant snowball has been pushed downhill and threatens to start an avalanche.

The financial world is looking at these twin disasters and now realizes that the only thing standing between them and the demise of the current financial and currency systems is, are you ready for this?

The Central Banks of the World!!!  Not exactly knights in shining armor, if you ask us.  We might be more comfortable if Pee-wee Herman were on the case.  At least he could provide entertainment as the demise unfolds!

The downgrade is another chink in the armor of the world’s largest knight in shining armor, the United States of America.  Every day, more people are coming to grips with the fact that the US of A cannot provide security and social benefits at such low rates.   Bill Bonner of the Daily Reckoning regularly explores this decline of the American Empire. 

As we touched on the other day, what man calls nations today are, for purposes of analysis, simply competing security agencies which have a man-made geographical monopoly.  The problem, as any businessman will tell you, is that nowadays the agency’s customers can’t take the price hikes.  Neither can they easily choose to move their business to a competitor.  Expatriating is not cheap and involves a host of logistical problems.

The book of Isaiah, chapter 40, God refers to the nations as a “drop in the bucket” and “dust on the scales.”  The obvious implication is that nations do not last, and in extreme cases, dealing with a government may feel like one is dealing with the Mafia.  The need to preserve a geographical monopoly can make an analysis of the actions of a government or a mafia eerily similar.

Seen through this lens, S&P is like the snitch who broke Omerta and tells everyone that the Mafia boss can’t pay on his contracts.  Now the boss will likely face an increase in the vig on what he owes the loanshark. 

How long before the rat gets whacked?

Don’t forget to keep your eye on events in the Middle East, especially Palestine.  Something bigger than we image is brewing there and our guess is that the eyes of the world will soon be focused there.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for August 8, 2011

Copper Price per Lb: $3.97
Oil Price per Barrel:  $83.36

Corn Price per Bushel:  $6.78
10 Yr US Treasury Bond:  2.37%
FED Target Rate:  0.09%  TIGHTENING?  NOT!

Gold Price Per Ounce:  $1,718 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  -0.2%!!!  PULL OUT THE HELICOPTERS!!!
Dow Jones Industrial Average:  10,899  TO THE MOON!!!

M1 Monetary Base:  $2,012,200,000,000 RED ALERT!!!
M2 Monetary Base:  $9,226,100,000,000 YIKES!!!!!!!

72 Hour Call

72 Hour Call for June 9, 2011

Today’s Call:  July Corn Price Per Bushel to rise.  Currently $7.85-4.

Rationale:  USDA Report released today revealed the expected corn surplus to be 23% less than already low expectations.  This will cause tremendous price pressure up and down the food chain.  Corn is to food production what oil is to manufacturing.  As such, we have decided to add it to our Key indicators.

Result of Call for June 6, 2011:  Bank of America (BAC) to rise.  Was $10.83, Currently $10.65.  Bad Call. 

Calls to Date:  Good Calls: 27, Bad Calls: 19, Batting .587

Key Indicators for Thursday, June 9, 2011

Copper Price per Lb: $4.09
Oil Price per Barrel:  $101.86

Corn Price per Bushel:  $7.85
10 Yr US Treasury Bond:  3.00%
FED Target Rate:  0.09%  FED STILL IN DESPERATION MODE

Gold Price Per Ounce:  $1,544

MINT Perceived Target Rate*:  2.25%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.4%
Dow Jones Industrial Average:  12,124
M1 Monetary Base:  $2,022,700,000,000 RED ALERT!!!
M2 Monetary Base:  $9,005,800,000,000 STARTING TO DRY UP?  NOT

 *See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.

72 Hour Call

72 Hour Call for June 6, 2011

Today’s Call:  Bank of America (BAC) to rise.  Currently $10.83

Rationale:  Banks, of which Bank of America, being the largest consumer bank, is an indicator, had some very bad press today as far at their prospects.  While we believe that in the long run these stocks are nearly worthless, B of A is likely to rise in the face of such negative sentiment.

Result of Call for June 1, 2011:  Greek 5-YR Sovereign Credit Default Swap to fall.  Was 1608.50, Currently 1390.97.  Good Call. 

Calls to Date:  Good Calls: 25, Bad Calls: 18, Batting .581

72 Hour Call

72 Hour Call for June 2, 2011

Today’s Call:  10yr Bond Yield to fall (price to rise).  Currently 3.064%

Rationale – Duplicating our call from three days ago for a different reason.  Moody’s today threatened today to downgrade the US Government’s Debt rating citing their inability to act on the debt ceiling.  Not surprisingly, Moody’s simultaneously warned some of the largest domestic holders of US Government Debt, namely Bank of America, Wells Fargo, and Citi of possible downgrades of their debt as well.  In the absence of another round of quantitative easing, the FED is now using a scare tactic to push money out of the Treasury markets and into riskier assets.  It will fail as the flight to safety that is to come will overwhelm it.

Result of Call for May 27, 2011:  10yr Bond Yield to fall (price to rise).  Was 3.064%, Currently 3.03%.  Good Call. 

Calls to Date:  Good Calls: 24, Bad Calls: 17, Batting .585