In Jim Cook's Archive


Analyst James Quinn wrote an article entitled “Have You Listened to an Expert Lately?” Here are some excerpts,

“It is essential that every citizen do their duty and skeptically assess everything they are told by politicians, bureaucrats and corporate CEOs. They will continue to speak authoritatively like they know exactly what will happen in the future. They are lying. None of these experts can even predict what will happen next week, let alone next year.”

“The Federal government will not bail out lenders – because that would only make a recurrence of the problem more likely.

George W. Bush, Sept. 2007

“These institutions [Fannie and Freddie] are fundamentally sound and strong.

Christopher Dodd, Chair, Senate Banking Committee, July 12, 2008

“I believe there has been more alarm raised about potential unsafety and unsoundness than, in fact, exists.”

Barney Frank, regarding Fannie & Freddie, 2007

“There is a chance that housing prices could fall, but its effect on the economy will be limited.”

Alan Greenspan, 2005

“Derivatives have permitted the unbundling of financial risks.”

Alan Greenspan, May 2005

“The market impact of the U.S. subprime mortgage fallout is largely contained and that the global economy is as strong as it has been in decades.”

Henry Paulson, January 2007

“All the signs I look at show the housing market is at or near the bottom. The U.S. economy is very healthy and robust.”

Henry Paulson, 4/20/07

“I’m not interested in bailing out investors, lenders and speculators.”

Henry Paulson, 3/2/08

“….the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.”

Ben Bernanke during Congressional Testimony 3/2007

“….the troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system.”

Ben Bernanke, 6/5/07

“It is not the responsibility of the Federal Reserve – nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions.”

Ben Bernanke, 10/15/07

“The worst is over.”

Warren Buffett, on Bloomberg TV, May 3, 2008

“Bye, bye bear market. Say hello to the bull and don’t let the door hit you on the way out.”

Jim Cramer, August 4, 2008

“The stock market is cheap on a price-earnings basis, profits are fabulous, both here and abroad, stocks are a lovely place to be.”

Ben Stein, August 13, 2007

“We finished the year positioned better than ever to capitalize on the array of opportunities still emerging around the world.”

Stanley O’Neal, CEO of Merrill Lynch, January 2007

“Nobody saw this coming.”

Angelo Mozilo, CEO of Countrywide Financial, July 2007 after he sold $138 million of stock

“I’m confident our company is in the right businesses for the long term and that our strategy of being in high growth businesses and markets, our laser focus on customer service, our expense discipline, and our commitment to strong credit risk management, will create value for our shareholders in the future.”

Ken Thompson, CEO of Wachovia, October 2007

“The lesson that must be learned is that you cannot trust anything ‘experts’ tell you. They are looking out for their own best interests, not yours. For the last two weeks I’ve watched ‘experts’ conclude that the U.S. automakers must be saved and a stimulus package of at least $700 billion is needed to save America. The same experts that told us everything was fine a year ago are now telling us we must spend at least $700 billion to save our economy. Why should we believe them now? Our country, our banks, our consumers, and our corporations are extremely overleveraged. We cannot stimulate ourselves out of this overleveraged situation. The debt must be paid off, and it cannot be done without much pain and sacrifice. Stimulus is just another name for more leverage. President elect Obama says that we can’t worry about the short term impact on the deficit. When was the last time that government worried about the short-term, medium term, or long-term impact of their actions on deficits? That is why our National Debt is $10.6 trillion and we have $53 trillion of unfunded liabilities.”


“Bernanke’s gonna keep printing money until they run out of trees.”

Jim Rogers

A friend called me Sunday morning to tell me his son had dinner the night before with wealthy members of a family who were in tears. The entire family fortune had been invested with Bernard Madoff. Apparently, a number of families at a local country club also had their money managed by Madoff. Suddenly their wealth has disappeared. Imagine the heartache and agony to wake up one day to this devastating loss. What do once-wealthy retirees do with no chance of income?

This is the second financial scandal to ravage my state. A few months ago, a businessman who owned numerous companies went down in flames. He ran a Ponzi scheme to the tune of $3 billion of investor money. He’s going to jail. Unfortunately, a lot more financial sewage could be floating to the top soon. In this environment you can’t be careful enough.

Even the largest financial entities are suspect. Analyst James Quinn writes, “Hank Paulson has dished out $180 billion to the largest 30 banks in the country in an effort to keep them solvent. It has now become quite clear that the largest banks in the country, with the ‘smartest’ MBAs, took excessive risk, created and then bought their own toxic derivatives, and lied to the public and their shareholders about their true financial position.”

The money managers, the talking heads on financial TV, and the perma-bulls have been proven wrong. It’s time to start listening to the people who have been right. I’ll quote a few of them in this article. They have all warned about the dangers of runaway money and credit expansion. Most people are still underestimating the extent of this crisis. They are hoping the stock market will recover and everything will go back up again as it has done before. What will happen is unknown, but it’s dangerous to base your beliefs on the things you want to have happen. If you only want to listen to Wall Street types who constantly express optimism, you can lose even more. Commenting on these bullish analysts, Dr. Krassimir Petrov, wrote, “This type of analysis reminds of the anecdote where a man falls out of a skyscraper; when asked by someone on the fifth floor window how things are going, he answers ‘go far so good, I’m simply moving quickly.’”

Economist Petrov goes on to say, “Unfortunately, the depth and length of the crisis are currently being discounted. At the moment, the crisis is in its initial phases.” Analyst Christopher Laird would agree. He writes, “The U.S. accumulates $9 trillion of national debt in 240 years, and in a mere year and a half, adds another $8 trillion? And for what? The credit markets are still frozen solid.” He continues, “Over $1000 trillion of leveraged markets are unwinding, and if you add up all the central bank efforts to loosen credit markets and do bank bailouts, it adds up to roughly 15 to 20 $ trillion. Well, $20 trillion is not near enough to stop $1000 trillion of markets deleveraging. So, the efforts are doomed to fail.”

James Quinn conveys this worrisome message. “There are $50 trillion of credit default swaps still outstanding. The hundreds of billions in taxpayer funds that have been poured into AIG have been used to pay out CDSs [credit default swaps]. According to the brilliant bank analyst, Chris Whalen, at least $15 trillion of these CDSs will need to be paid out. All the Central Banks in the world cannot create that much paper out of thin air.”

Quinn continued, “Colossal amounts of credit card debt and auto loans will be defaulting in 2009. Consumers currently owe $2.6 trillion of consumer debt, up from $2.1 trillion in 2004, or a 24% increase….With 3 million more job losses in 2009, the credit card losses will be much greater than $100 billion. JP Morgan, Bank of America, and Citigroup will sidle up to the taxpayer trough again due to these unforeseen losses. Nationwide, an estimated $575 billion in new and used auto loans are written every year by auto manufacturers, banks, credit unions and other lenders…..With the average length of auto loans exceeding 5 years and the tremendous downturn, there are millions of consumers underwater with their car loans…..It is quite clear that consumers are collapsing. The toxic combination of reduced spending and mass layoffs will bring down the last remaining pillar of the economy, commercial real estate…..After the coming horrific holiday sales, weak heavily indebted retailers will be filing for bankruptcy en mass. Mall owners that had expanded hastily with generous amounts of debt in the last few years will see rents dry up and their debt payments will choke them to death…..Office occupancy will decline and rental income will tank.”

There’s more! Newsletter editor Greg McCoach warns, “The latest forecast for the annual U.S. Federal budget deficit in 2009 for more than US$3 TRILLION! That is over $2 TRILLION more than last years budget deficit that we used to complain about.”

Investment manager Puru Saxena expresses his view. “It is worth remembering that our world’s financial system has been hijacked by money-printers. Whether it is the Federal Reserve, Bank of England or the European Central Bank – they are all creating money ‘out of thin air’ and inflating the supply of paper currencies…..Whilst paper currencies (cash) regained some purchasing power in the past few months due to forced liquidation in the asset markets, there is no chance that they will maintain their value over the medium to long-term. History is littered with numerous paper currencies which became totally worthless and I suspect many of the current ones will also disappear.”

None of this information and advice bodes well for the dollar. Newsletter editor Ron Struthers writes, “The fundamentals of the US$ are in the worst shape they have ever been and once the short term effect of de-leveraging has run its course, the dollar is going down, big time.” Newsletter analyst Boris Sobolev concurs, “If the Fed continues, as declared, to support interest rates at artificially low levels by the way of debt monetization, a major down-leg in the US dollar is inevitable.”

Editor Clive Maund warns, “Watching investors fleeing into the perceived safety of US Treasuries is akin to watching people board the Titanic in the movie – you know that they are doomed. This is because the United States is totally bankrupt – more than bankrupt in fact, since its debts are physically impossible to repay in any circumstances and what we are witnessing now is the cowards way out – the creation of money in whatever quantity is necessary to prevent total gridlock…..This has one inevitable outcome – hyperinflation, which, incidentally, can take hold even in conditions of deepening recession/depression.”

Olivier Garret writes this for Casey Research, “How will our country repay its debts? The current bailout represents 62% of our GDP. Our current deficit of almost $11 trillion may exceed our GDP next year…..our government will need to attract trillions of dollars annually to fund its programs and commitments. The foreigners who have financed our irresponsible spending for many years will no longer be able to afford it, let alone finance more of our reckless behavior…..Once this inflationary cycle starts, foreigners will realize that their investment in T-bills are depreciating rapidly. There will be a massive exodus that will put more pressure on the dollar and on interest rates.”

What’s an investor to do? How do you protect yourself? After the Treasury gave Citigroup $300 billion, one of the bank’s financial analysts wrote these words. “Gold is poised for a dramatic surge and could blast through $2,000 an ounce by the end of 2009 as central banks flood the world’s monetary system with liquidity.” Although silver isn’t mentioned, it should be clear that the reasons for a rise in gold will also boost silver, probably even more so.

Finally, editor Ned Schmidt predicts, “With the Federal Reserve committed to unlimited creation of dollars and Obama committed to unlimited government spending, the U.S. dollar’s value could become the Dog of 2009…..Obama will be like a gift falling from the sky to gold [and silver] investors.”

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