Investment Rarities Incorporated
History |  Q & A  |  Endorsements  |  Portfolios  | Flatware | Gold Coins  |  Silver Coins  |  Contact |  Home

Products

Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

..Read More »

The Best of Jim Cook Archive

 
Best of Aubie Baltin
Febuary 11, 2010
archive print

LIVING IN A FANTASY WORLD

"It’s not what we don’t know that hurts us -- it’s what we think we know that isn’t true that can kill us."

In a world where banks can profit thanks to the ‘spread’ between the money they borrow for free from the FED and the yield on Government guaranteed FHA bonds… there’s no valid reason to even consider lending to consumers, since lending to FHA does not require any reserves be maintain.  It is also a fact that banks can forego recognizing losses following the suspension of ‘mark-to-market’ accounting rules, and you have all the makings of the continuation of the mark-to-make-believe economy and Phantom Profits.

"America is in financial crisis, but instead of the financial oligarchy being broken up to permit essential reform, they are continuing to use their influence to prevent precisely the sorts of reforms that are needed. 

In A Nut Shell. For 3 years, the Banks made record PHANTOM PROFITS by marking their Toxic Assets to their own estimated fantasy of fair value, reported recorded profits and then promptly paid themselves Record Bonuses. When the chickens came home to roost the Government, led by Paulson, Bernanke and Geitner, created $800 billion in TARP funds to bail them out, while still allowing them to Mark to Model. Then loaned them $ trillions at zero interest so that they could buy FHA bonds yielding 5%. Not one cent of all that money was lent to small business, so the FED had to step in and bail out the Commercial Paper Markets in order for the financial system not to collapse. They then also had to inject $10 trillion to bail out FNM and FRE and take all these toxic assets off the banks’ hands. So what did Congress do? They went after the only people at AIG who actually earned their performance bonuses that were paid in lieu of salaries.  Not one word or demand was said or made against the real culprits. What else can we expect, since they are some of the largest campaign contributors?  As far as sweet heart mortgage deals to Barney Frank and Chris Dodd, not one word was spoken, no senate hearings were called for and no action was or is planned. After all, it only cost the the Tax Payers $10 trillion.   

Not to be outdone, the profitability of the banks has been outdone— by the Federal Reserve. They reported record earnings in 2009, amidst a huge expansion of their balance sheet.  The results, of course, are unaudited. After all, the Fed argues, it’s not a public company and it’s not part of the Government.

There’s reason to worry. Eventually the fairy tale will end and we’ll find that it’s not all roses and living happily ever after. Without bank lending, and the much more stringent underwriting standards, the FHA has become the lender of last and first resort buying 95% of all new mortgages.

Existing home sales plunged 16.7% in the month of December 2009, the largest monthly drop in more than 40 years. All coming in the face of the Central Planners' failed program extending tax credits of $8,000 to first time home buyers and $6,500 to relocating home buyers -  But what about the cost to TAX PAYERS and the ECONOMY?

Homeowners face another downturn in housing in 2010 as more subprime and Alt-A mortgages come due. With commercial real estate, IT MAY EVEN BE WORSE, as 5 year easy loan terms issued before the crisis hit are now coming due to be rolled over; not likely since the equity has been reduced by as much as 40% The jobs picture, distorted by phony calculations and seasonal adjustments, remains tragic with unemployment still in the double-digits, well above the worst-case-scenarios projected. What should we believe about future Government projections?

Amidst this backdrop of questionable earnings, economic growth is vastly distorted by Government intervention and the potential further loss of individual freedoms: The government cracking down on bailout tycoons, and the further Government oversight of the Federal Reserve - watch out for what happens when we run smack dab into reality.

The stock market has just shown us in this past week that the 5.7% GDP growth is not to be believed.  That all the tough talk, new Irrational projections and new regulations…or literally anything that will increase taxes and hurt corporate profit margins can send the stock market reeling. It’s also possible that a new round of regulations – or a new round of stimulus – coupled with new taxes could be what sets off the coming stock market crash/ come Depression.

BUY AND HOLD

All the ups-and-downs of the last several years should have taught us that one can NO LONGER afford to be a Buy and Hold passive investor. You must be aware of what's happening and why: Not only in the markets, but especially in politics and its effects on economics and the economy.  You must be prepared to switch gears on a dime when the times call for a change.

Recently, the Wall Street Journal website reported, "the fourth quarter is likely to mark the end of the earnings recession. Operating earnings for companies in the S&P 500's stock index are expected to nearly triple on a year-over-year basis." But that was not all. The Dow continued its relentless march ahead, looking like it may top 11,000 before month's end. In fact, just pick a market indicator; it seems like all world markets are advancing and millions of investors are hoping that it's not too late to get in.