The Confidence Game (the Federal Reserve System)

Posted in Financial markets with tags , , , , , , on July 29, 2009 by texpilot22

I had spoken briefly in a previous blog about the subject of the US dollar and it’s role as the World’s reserve currency and how that role is being threaten by Central Bank powers from numerous countries.  The Federal Reserve System (created in 1913 by the Federal Reserve Act) is a confidence game here in the US as well as globally.   Our Federal Reserve Notes are known as the premier world reserve currency and preferred medium of exchange in international trade, this status, however, is becoming increasingly in doubt due to two primary issues that I covered in my previous blog.

  1. Washington’s $2 trillion deficits, along with record-shattering borrowing by the U.S. Treasury.
  2. The second and this one is the big one, the endless money-printing at the Fed which makes a decline in the value of the greenback a virtual certainty.

If uninformed Americans allow themselves to be misled by rosy propaganda flowering from the Federal Reserve and the Treasury, the rest of the world does not.  The instability of Federal Reserve Notes and the Federal Reserve System as a whole is becoming increasingly apparent to foreigners.  We know that countries like Japan, China and Russia don’t have the confidence in our currency to continue buying our debt.   Knowledge of this increasing instability is itself further increasing instability in the vicious circle characteristic of the break-up of all Ponzi schemes.  Just take a closer look at our social security system, but that is another story for another day and blog.

If we as a nation continue down this path, this fiat monetary process threatens to generate an accelerating downward spiral of crises, until America’s monetary and banking systems are either reformed or self-destruct.   If economic history is any guide, as this process works itself out gold and silver will appreciate step-by-step with the depreciation of Federal Reserve Notes.   To read more about the Federal Reserve go to my site at


EUR or USD who is the winner, you decide.

Posted in Financial markets on July 27, 2009 by texpilot22

Recently the EUR has gotten the best out of the USD.  Look at my video and you decide for yourself.

The derivatives mess part 2

Posted in Financial markets with tags , , , , , , , , , on July 21, 2009 by texpilot22

We are having a bubble burst, now that these derivaties are bursting all at the same time — plunging us into the deepest  de-leveraging since the Great Depression.

You see, when you have this kind of monstrous amount of leverage built into the system, it does not matter what type of system is being used.  The repeated leverage is the contributing factor for total wealth evaporation.   A mere 1% fall in the price of the final investment, and in this case a CDO, it can wipe out the initial equity, and create a chain of margin calls.

This is where the real problem lies, the one at the very core of the credit crisis.  The amount all these traders have to put down in order to place their derivative bets is based upon their credit rating. The stronger their credit rating, the less they have to put down on their derivative bets.  OK, so what happens if their credit rating is downgraded.  If this occurs, they have to put up more money to cover their bets. In order to do that, the bank, hedge fund, money market fund, private equity fund, pension fund etc. must sell its investments.

Problem is, it’s unable to sell many of its investments (like CDOs) — because nobody wants them, so it has to sell its good investments (like its stocks). And naturally when things sell, prices drop, which causes further selling, and further downgrades and so on.  Do you see the snowball effect here.  At present that is exactly what we are experiencing with our Global markets.  This is one reason why stocks, investments and markets that seem so far removed from the subprime mortgage meltdown are being affected.  Well if you think you have seen the worst, think again.  Wait until the commercial real estate markets (which also have subprime derivatives) begin to fall apart.

We have seen a total of over $10 trillion dollars wiped off the global stocks exchanges in the past year.  This is after trillions of dollars have been injected into the financial systems by central banks all over the world.  And now the next demon derivative is about to take on Wall Street and wipe out close to $20 trillion off Global exchanges.  This will send the world into what might end up being a global deflationary collapse.  In my next blog, we will talk more about derivatives and about the next demon derivative that will rock the pillars of our financial markets.  We will also talk about ways to protect yourself and multiply your wealth by buying alternative investments.

The derivatives mess part 1

Posted in currencies, Financial markets on July 7, 2009 by texpilot22

Well folks, like it or not, the nightmare scenario is well under way.  The dollar continues to lose ground against other world currencies and inflation is starting to raise it’s ugly head once more.

The warning signs have been among us for the last 5 years.  And while the powers that be would love you to think that they’ve got everything under control, and we’re talking about the Fed here.  Because if you think the President of the United States or any other branch of our government is running the show, well then you can keep on thinking that.  I for one believe the Federal Reserve along with other Central Banks are behind what has transpired over the last few years.  I am talking about the Global derivatives mess we presently find ourselves in, and I say we because we as tax payers will end up paying for this disaster through taxes.  You will soon see that once the next wave of global derivatives hit the markets, financial disaster will be worldwide.  No amount of Fed magic will be able to contain the crisis this time.  But I am getting ahead of myself, so I will talk a bit about these derivatives and how they work in the financial world.

Bill Gross, the legendary bond investor, called this particular type of derivative one of the banks’ most “egregious concoctions” to date! It’s the now infamous investment, which goes by the name of the Subprime CDO (Collateralized Debt Obligation). The investment derives its value from the subprime mortgage markets.  These investments were basically bets on whether or not the average American homeowner with a poor credit rating could make his monthly mortgage payment on his inflated home.  Probability would say that the typical American with poor or bad credit would last 3 to 4 years at best before he or she would default on their loan.  With unemployment at 9.4% and rising these same Americans find themselves without a job, and without a job, it’s kinda hard to pay your mortgage along with other living expenses.

Some of the big boys on the financial block like JP Morgan who many believed was one of the largest holder of these derivatives hired Jamie Dimon (who’s been called the world’s greatest banker)  to unwind their giant derivatives portfolio and reduce their exposure and risk.  He was somewhat successful but other banks and hedge funds took up the stack. The derivatives bubble continued to grow unchecked and unregulated.  Well as if we did not see it coming, this new demon derivative began to proliferate like wildfire…which threatened to take down banks like Wachovia, Merrill Lynch, Morgan Stanley, Deutsche Bank, and hundreds of other hedge funds and financial institutions.  A side note, in a perfect world of low interest rates, low inflation and easy credit, these derivatives were a gloriously effortless way for banks and hedge funds to reach for yield. The risk at the time was moderate, but the reward high…at least until everything started to go wrong…and these miracle bets began to rapidly unwind.  One of the main reasons that we find ourselves in the mess we are in is because, these derivative bets are bought on an enormous amount of leverage.

I will show you a simple example so that the complexity of these derivatives can be understood.  Wealthy individuals can go to a broker and put down $1 million, and then leverage this amount 3 times. The resulting $4 million ($1 million equity, $3 million debt) can be invested in a fund of funds that will in turn leverage this $4 million another 3 or 4 times and invest them in a hedge fund; then the hedge fund will take these funds and leverage them another 3 or 4 times and buy derivatives like subprime CDOs, which are often themselves leveraged 9 or 10 times!  At the end of this long credit chain, the initial $1 million of equity can become a $100 million investment, out of which $99 million is debt, (leverage) and only $1 million is equity. So we get an overall leverage ratio of 100 to 1.  Can you see how this beast can quickly get loose and destroy wealth worldwide.  It was this super-leverage which helped create the largest asset and credit bubbles in the history of mankind.  This massive bubble includes a global real estate bubble, a mortgage bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge fund bubble and the mother of all economic bubbles: the global derivatives bubble.

US Treasuries at near zero rate

Posted in currencies, Financial markets on January 27, 2009 by texpilot22

We will be talking about US Treasuries today, a subject that is close and dear to my financial heart. I have not blogged for a while but when I do, I try to share information that is vital to our financial survival. Mr. Ben Bernanke latest announcement is that he’d consider purchasing long-dated bonds in the open market to manipulate yields. Will his plan spell doom for the US economy and the dollar, or will the 27-year bull market in Treasuries continue it’s run.

We will talk about facts and only what we know for sure. Since October 1981 when yields hit 15.21% on long term bonds, US Treasury yields have been on a downward trend ever since and aside from a few reversals in that span of time, yields have consistently been lower each year.

Many US Treasury experts feel that the present Treasury market is showing “some bubble characteristics,” and that governments are extremely overvalued. The very essence of a bubble is that it’s unsustainable in the long run. So let’s ask you a question; what happens if we continue with lower yields and the 30-year government paper reaches a yield of zero?

With rates at this level, it is the belief of many, including myself that we’re in a deep depression. Essentially, what the market is saying is that it would rather park money with the government for 30 years – with a guaranteed rate of return of zero. This means a zero risk in the private-sector investments. Retirement fund managers would be forced either to adjust their expected returns or abandon Treasury debt altogether.
Investors, public and private in zero-yielding Treasury paper would actually be taking on more risk than they might expect. And that’s the risk of a rising interest rates…
If Treasury yields reach zero, it is not likely they’ll stay at zero forever. Once these yields start to rise again, it puts the capital investment of bondholders at risk.

Let us run through a quick example of how this would work in the real world. US Treasuries are yielding zero and you purchase a US$1,000 dollar note without any discount (so you’re paying US$1,000 for the bond). Then, rates eventually rise to 1%. That means that buying the same bond will only cost you US$990, even though you’ll still be reimbursed the full US$1,000. That means you’ve essentially lost 1% of your original capital investment, as the market price of your bond would change to reflect the new issue yielding 1% more than your original purchase. As you can imagine, the lower yields get, the greater the risk to an investor’s capital is likely to be.

It’s hard to tell whether Treasuries are currently in “bubble” mode.
Unfortunately, most bubbles just aren’t diagnosed until after-the-fact. While they’re clear in hindsight and defining “unsustainable” levels is easier after the bust, the real defining attribute of a bubble is the rampant sell-off and ensuing havoc that come once the bubble has popped.

So should you join in with the “Bubble-phobia” and steer clear of Treasuries?

In my humble opinion, It would be wise to steer clear of Treasuries right now, but not because the Treasury-bubble-boogeyman is hiding under your bed. Simply put; the interest rate risk seems far too great for the meager reward of near zero-yielding Treasury securities. In light of the news, we can safely expect Bernanke to do everything in his power to suppress that long end of the curve. And we can probably expect the market – in turn – to continue to disagree, leaving Treasuries in a relatively volatile position.
Instead, Investment Director Eric Roseman believes there’s a case for select issues of Investment-Grade Corporate debt. It’s also a great time to look at gold, “With interest rates now at 0%,” Eric recently said, “the cost disadvantage to holding gold has vanished because high quality Treasury bond yields have plummeted while T-bills pay next to nothing. Gold and Silver will probably safeguard your capital better than paper money in this environment.”

Silver & Gold and our fiat US Currency

Posted in currencies, Financial markets on December 30, 2008 by texpilot22

The fight against the use of silver and gold as money that has been waged by bankers and politicians since the 1870’s for silver and the 1930’s for gold. This fight will intensify as fiat currencies collapse throughout the world If you won’t aware of this, let me be the first to say that this fight is ultimately directed against America’s national independence, her constitutional government, and every common American’s individual liberty and prosperity.

The Constitution of the United States adopted a monetary system consisting of silver and gold coin, in which the standard is the “dollar,” containing 371 1/4 grains (troy) of fine silver, with the values of gold coins to be measured in “dollars” according to the free market’s rate of exchange between silver and gold. Neither the general government nor any state is authorized to emit paper currency. The US dollar is paper “fiat” currency.

These restrictions prevent rogue public officials from turning public debts into currency, as a means for redistributing wealth from society to political elitists and their clients in special-interest groups. The Federal Reserve Act of 1913 changed these restrictions.

In addition, the Constitution does not mention banks, either public or private, its only correct construction requires separation of bank and state — extirpation of all inherently fraudulent fractional-reserve banking schemes — and rigorous regulation of all other fractional-reserve arrangements that might operate fraudulently. (See Edwin Vieira Jr., “Pieces of Eight: The Monetary Powers and Disabilities of the United States Constitution,” second revised edition, 2002.)

But since the early 1800s and after 1913 these rogue politicians and bankers have steadily subverted the Constitution by forging an increasingly tight relationship between bank and state. Through the grant of one abusive special privilege after another, politicians have immunized fractional-reserve banking against the just economic and legal consequences of its own inevitable failures. With this power, public officials and bankers could turn both public and private debts into currency — thus separating the supply and the purchasing power of currency from the economic discipline of the free market, and rendering those matters largely political in nature.

Under the Federal Reserve System, Americans no longer enjoy “money” in the economic sense but are subjected to what must be denoted as “political currency,” with emphasis on the adjective. Political currency or fiat currency is emitted on the basis of political debts –that is, either 1) public debts or 2) private debts for the payment of which the creditors expect public bailouts if their debtors default.
Unfortunately, the Federal Reserve System is inherently unstable, and must lurch from one self-generated crisis to another, each increasing in severity, until its house of financial cards self-destructs. At that point, the system needs to be replaced with a similar unstable system and the process beings a new cycle. Have you heard of the “Amero”? The new currency (fiat) that will replace the US dollar, Mexican Peso and the Canadian dollar are the new North American Union currency. 2010 is the magic year folks and no one in Washington cares.

You have to understand that in order for this scheme to work, the powers on Wall Street want the American public to use the system. The fiat currency system only works (profitable) if more debt is created. These individuals will benefit from the system by continuing to loot society. The supply of political currency must expand with no limits for maximum profits for bankers and Wall Street. For this supply (paper currency) to expand, political debts must increase.

True enough, political debts can increase, even geometrically, because political currency can be created (as the saying goes) “out of nothing” to float them. But real wealth cannot be generated simply by the emission of paper promises. Neither can new paper promises pay off old ones.

Silver and Gold

Posted in Financial markets with tags , , , , , , , , on July 27, 2008 by texpilot22

Gold and Silver Eagles as protection!!!!

Recently, I got an email from one of my friends. She wanted to know if I had any recommendations about what type of gold to buy as an investment. I recommended purchasing U.S. gold eagles, rather than other types of gold bullion coins. Her next question was “why US gold eagles and not some other type of gold. She believes in my skills and abilities as a trader and financial market investigator, as I like to call myself, but her question was an excellent one.

I explained to her that for U.S. citizens, and persons with ties to the U.S. US gold eagles unlike other forms of gold, are eligible for the reduced 15% tax rate on capital gains. However, that’s only true if you’re in the 15% tax bracket. (e.g., married filing jointly with an adjusted gross income under US$63,700).

The US Government considers U.S. gold eagles along with all other forms of gold bullion as “collectibles.” If you’ve held these gold coins for over one year, your gains are taxed at your marginal tax bracket. For collectibles, the maximum rate is 28%, not 35%.

She was worried about Uncle Sam taking her gold savings just like they took her father’s gold back in 1933. I can understand her concern. However, if you’re worried about the government confiscating gold, just like FDR in 1933, you may want to purchase gold eagles instead of some other form of gold. The 1985 legislation that authorized production of these coins also known as gold and silver Eagles, stipulates that these coins are to be considered “numismatic items.”

They’re not specifically exempted from any future government confiscation of gold. With that being said, looking back on the emergency order issued by President Franklin D. Roosevelt in 1933, forcing owners of privately owned gold to sell their holdings to the government, specifically exempted “gold coins having recognized special value to collectors of rare and unusual coins.”

I told my friend that I did not believe another gold confiscation is particularly likely, the main reason being because the taking of gold would be pretty slim. If the federal government gets desperate enough to begin confiscating property under some emergency decree, it would likely start with assets that are easy to identify and with a much greater value. That includes real estate, stocks, pension funds, etc. She didn’t want to hear that.

However, if you do believe a confiscation could happen, then you should consider you purchasing the only coins specifically defined in U.S. law as “numismatic.” The gold and silver Eagles fall under this category.