Federal Reserve Bank

This is shaping up to be one of the worst weeks ever for the US taxpayer and the US Constitution. President Bush has now given Treasury Secretary Paulson the go-ahead to prop up the feeble Fannie and Freddie duo. Think about it…..with the stroke of a pen, Mr. Bush has agreed to print sickening sums of money that will undermine the stability of the US Dollar for years to come. Whatever happened to "we the people"? Now there are reports circulating that foreign investors are holding massive amounts of Freddie and Fannie shares. Hence the reasoning for this un-precedented bailout. These are the same foreign entities that have been financing the run-away trade deficits that America has been proudly sporting for the past decade or more. These are the same foreign investors that by purchasing America's Treasury Bonds have financed the war in Iraq and the invasion of Afghanistan.

America is broken. America has now been reduced to groveling at the feet of its masters – the foreign countries who finance its trade deficits and who hold its Fannie and Freddie shares and its Treasury Bonds. America is now gutting itself and falling on its sword in order to appease its masters. "We the people" are now "we the subservient". Read more »

House insurance is something we all have to safeguard against disaster. Now, keep this theme in mind as I attempt to spin a tale of possible horror and mayhem.

Let's suppose there is a house and it sits on a potential earthquake zone. Inside the house lives a normal everyday family. There has never been an earthquake on this ground before, but experts warn that it could happen.

Now, let's suppose you approach an insurance company and you make moves to take out an insurance policy on the house. Remember, you do not live there. You just know it sits on a potential earthquake zone and that there could be an earthquake. If there is and if the house is destroyed, you would be able to collect on the insurance policy. True, it has cost you money to purchase this insurance, but you are quite certain that an earthquake will come and you will get to collect.

Now, let's say you mention what you have done to your buddies on the golf course. Being profit seekers, they too approach the insurance company and they too take out insurance policies on the same house that you did !! The insurance company collects even more fees and is quite happy to do so because there has never been an earthquake on the ground where the house sits and as far as the insurance company experts are concerned there never will be. Let's suppose your buddies tell a few friends about their strategy. These friends make their way to the insurance company and they too take out policies on this house. Cha-ching!! Cha-ching!! The insurance company has made a serious amount of money selling these policies. Read more »

I have been sitting here watching the action on the US Dollar in the wake of Ben Bernanke's decision to keep the key interest rates at 2%.

With this decision, the US now joins the rest of the world in getting aboard the inflation fighting bandwagon. The past number of years have seen spectacular growth stories. Manufacturing has boomed in Asian and even here in the US growth was most evident in the housing market.

But growth has consequences and inflation is perhaps the greatest consequence. Now Central Bankers are on a mission to beat back the savage beast of inflation. Problem is, many Central Bankers started their mission against inflation many months back. Read more »

In a blog late yesterday I noted that I fully expected the Fed to cut rates and then offer up some language indicating this would be the final cut. Leading up to the rate announcement, markets were up on the day and commodity stocks were treading water.

I now sit here, perplexed at what I have seen. Yes the rate cut came as expected ( 25 bps ), but what was missing was the language. The Fed noted that economic prospects remain weak and that while they expect inflation to moderate, they are keeping an eye on it. Nowhere in the Fed-speak was there a hint that this was the final cut. In reponse, currencies took off to the upside like a pack of scared cats running from a big dog. Gold and Silver did an about turn as did Copper to all end the day higher. The DOW and S&P buckled under the prospect of more possible rate cuts and as I type.... have both given back all their earlier gains of the day.

The next couple days will tell the tale in its entirety as decision makers have a chance to better digest the events of today. Judging from what I see on my quote screen right now, I am thinking we may be on the cusp of another move down in the US Dollar and another move up in metals and commodities.

Stay tuned.... Read more »

In some of my recent writings in my Commodity Supercycle Report I penned an argument that said this week Ben Bernanke would take a cautious stance on the interest rate front. I argued that with inflation running at 4%, the Fed was flirting with negative real interest rates. I called for a cut of 25bps, 50bps at the very outside.

Well by a vote of 8-2, the Fed proved me wromg and opted for a full 75 bps cut. The Street rejoiced as this fresh hit of crack cocaine induced a feeling of delirious pleasure.

This week also brought news that the Fed in a side-deal injected more liquidity into the system and set up a deal with JP Morgan to put Bear Stearns out of its misery. Now there is talk of a shot of cocaine for the depressed Fannie Mae. Soon Fannie shall be smiling as she walks about in a state of happy delirium.

Where does it all end? What if another investment bank hits the skids next month. Does the Fed slash another 75 bps? Read more »