Greetings everyone! Yesterday the Dow Jones had a 600 point rally in just over an hour all based on the fundamentals of blind hope. It was almost as if every kitchen sink in America was thrown at the stock market yesterday in order to stop the collapse. The market shortly after the FED statement was down just over 200 points, it then turned on a dime to close up over 400 points. Seeing the Dow rally 600 points in just over 60 minutes reminded us of 2008, violent swings, with the losers (financials) leading the pack. Bank of America (BAC) is probably the Lehman Brothers of 2008, stuffed with bad loans from their acquisition of Countrywide Mortgage. Mass layoffs for the financials have already begun and we expect this trend to continue throughout this year and into 2012.
Bank of American (Debt Man Walking)
This morning we learned that the first major quasi bailout of the 2011 crisis has begun, Bank of America has agreed to sell part of its home-loan portfolio to taxpayer controlled housing giant Fannie Mae. The 400,000 loans have an unpaid principal balance of $73 billion, Fannie Mae (taxpayers) are buying the rights to process and collect payments for more than $500 million. Now according to Bank of America, they gave the taxpayers a great deal, unloading loans that have a super high delinquency rate of 13% with more than half of all the loans located in troubled U.S. real-estate markets. By the way, Fannie Mae just last week requested another 5.1 billion from taxpayers in order to make up for continuing losses from supporting an unsustainable real estate market.
Freddie Mac recently requested an additional 1.5 billion as well, of course the Treasury Department is currently responsible for funding 90% of mortgages, so there is no doubt that the taxpayer funded giants will get more of our money. Experts love to say how we have to keep bailing them out or we would see a complete collapse in the real estate market, as if more affordable and sustainable housing prices is a bad thing. Ending the fraudulent housing market would be painful for those depending on the fraud, but for those who would actually like to OWN their home and not rent it from the bank, seeing prices decline to affordable levels would be a great thing.
The Federal Reserve
On July 14th FutureMoneyTrends.com wrote an article titled, “The Federal Reserve has been Checkmated.” Well yesterday the FOMC statement was proof of that, the FED told the world that for at least the next two years, interest rates will be zero. Gold since our checkmate article has risen from $1,585 to $1,801, in our opinion this is also confirmation that the FED has been checkmated.
Now at some point in time during 2011, the FED and other central banks will come together to coordinate the ultimate quantitative easing plan, the biggest money printing party the world has ever seen. By the FED announcing low interest rates for at least two more years, the FED by default (no pun intended) also revealed that they believe that we will be in a recession for at least two more years as well. In fact, for those who have reviewed our micro-docs and other longer term trend reports, FutureMoneyTrends.com believes the current downturn will last this entire decade due to demographics and peak fraud in the fiat currency system.
Now as we move into the next leg down in the U.S. depression, consider the following. In 2008, real unemployment was almost half of what it is today, Food Stamp use was at 28 million people, today it’s at 46 million, and the FED was able to lower interest rates combined with massive bailouts. Simply put, the next leg down will be far far worse than 2008/09 and for those who rely on Keynesian economic policies, the FED is out of ammo. The only thing left for the FED is to just print endlessly and try and hope that the Ponzi scheme will last a few more years. Like all Ponzi schemes, the end is always ugly, as in our case where the world needs more easy money in order to keep the status quo. Think about the U.S. for a minute, from 1981 to 2007 the economy was fueled by a massive credit expansion, one that opened many businesses and created millions of jobs. Of course as people are starting to learn, in order to keep those jobs, you have to keep the credit expansion going which clearly will not happen now that we have peaked. The U.S., States, and public have little chance of ever paying off its debts. Imagine the U.S. government trying to cut 40% of its annual budget, collapsing the tax revenues generated from deficit spending as well as bursting the bubble of millions who’s jobs depend on the misalocation of borrowed funds from the government. This is why FutureMoneyTrends.com is certain the U.S. will face a major currency crisis this decade. One that will be epic along with the transfer of wealth for the few who prepare for it. We know that everyone is probably happy with the returns we have seen so far in our commodity plays, but in all honesty (in our opinion) we have barely scratched the surface.
Gold rallies and the minors get decimated?
FutureMoneyTrends.com believes that junior mining companies are probably the most undervalued sector in the entire stock market. The recent broad sell off in stocks has made some of them unbelievably cheap, especially the producers. Obviously their earnings estimates will be off since most had an average gold price of less than $1,500 for gold and $25 for silver. The good news for those who haven’t taken advantage of these opportunities is thatFutureMoneyTrends.com will be presenting several more throughout the rest of the year, some long term and some short term breakout plays. Obviously with the markets in panic mode, we will be holding off until we feel the timing will be better to maximize the opportunity.
As far as why are junior mining companies going down right now? All kinds of reasons, with such low volume you could literally have just a handful of people trading a specific company, so it is not surprising at all that we could see someone who may need to raise cash hit the bids for fast money. Remember, often times with micro-cap companies it might take less than $1,000 to move a share price 20% in either direction. The fact is if it’s the only trade or last trade of the day, the close price can often swing portfolios wildly. As for those who believe this will be 2008 again, FutureMoneyTrends.combelieves this is unlikely since most juniors are already trading at such low valuations, in fact lower than in July of 2008 when we had $900 gold.
On the Brink
Economic uncertainty is fueling global unrest. With high unemployment, small protests are easily turned into full blown riots. In London, the headlines are focusing on a man who was killed by police which originally started some protests, however, if you talk to people on the street, this goes way beyond one man’s death. London’s press has reported that discontent has been brewing amongst Britain’s urban poor for years.
Over 250,000 people protested over cost of living increases, their demands are extremely scary for those who value liberty. Protesters are demanding a 50% increase in the minimum wage, higher taxes on the rich, and a ‘right to housing.’ Obviously the protester demands are fueled by economic ignorance which makes them that much scarier. The formula is simple, government grows and manipulates the economy, hurts the people, and then the people ask the government for help.