Traveling to the Heartland ...

Around midday today I will travel to Ohio to my hometown and expect not to have Internet access there. So I will be unable to make new posts to this blog until Monday.

Here’s an interesting story:

Central banks have all but stopped lending gold to commercial and investment banks and other participants in the precious metals market, in a move that on Tuesday sent the cost of borrowing bullion for one-month to more than twenty times its usual level. …

Demand for physical gold and small and medium-sized bars had been strong, removing supplies from the market that otherwise could have been lent, traders added. … The US Mint on Tuesday said it had run out of half-ounce and quarter-ounce American Eagle gold coins following “unprecedented” demand.

Investors are seeking refuge in actual gold coins and bars as fears about the safety of their savings increase. Some have even been selling their positions in gold futures, as this is a less tangible form of the metal.

Despite the recent move up, gold is still well below its price this Spring when gold sold for over $1,000 per ounces, which is when I sold the bulk of the physical gold in my Krypto Fund. But I still have a good bit – enough for a real crisis of civilization.

Cad of the Week, Ken Lewis of BAC gutted his own shareholders as he funded his construction of his monumental edifice: clearly the purchase of MER has shaved 1/3 to 1/2 off the value of BAC. Cad Ken sells $10 billion of BAC stock at $22, a 1/3 haircut off its recent trading range.

Battleship Ben continues heavy shelling and no doubt the cure is pulsing through the veins of the patient. But what is happening now is the deluge of a trillion $$$ of hedge funds liquidations as the rich continue to panic. The rich “invested” over a trillion $ since the mid 1990s in hedge funds that were no more than speculative trading shops. No long term "real" investments were made with all this money. No new mines … buildings …. factories … or even venture capital was funded. And most of this money went into “trades” in similar investment strategies. The managers extracted colossal fees – billions - for merely being cow in the herd.

Hank the Tank continues to build his offensive resources and refine his plans. Soon the financial version of Bradley’s Operation Cobra offensive will be launched. Once the bears line is crushed, Patton’s tanks will roll up the bears. He’s got to get this right and not squander his resources.
Using the medical analogy, the fever is now peaking and will soon subside. Then the recovery.

The UK is recapitalizing its banks. And requiring the banks to lend. Seems OK to me. Note that HSBC [ticker HBC] says it does not need the money and will not participate.

I wonder when the ECB and BOE will cut interests rates ? The silence is remarkably deafening.

I hate to mention a longer term drag, but all those homeowners who took out balloon mortgages for 5-7 years might have serious problems refinancing. That is a lesson to be re-learned after first learnignit in the 1920s. I ranted about that practice here and in other forums over the past few years. But as usual, greed ruled over sense.

PS: Isn't it odd that many/most anecdotes about people in trouble with home morgtages include a cash out re-financing or home equity loan spent on vacations, etc. A home is a home is a home; it's not an investment or a piggy bank.

Markets

Asia got crushed last night. My chronic infection of “buyearlyitis” continues. I bought a bit of JOYG yesterday and some JPM. So far I have not shown symptoms of “addearlyitis” .. whew !
For now I will wait until the storm subsides, then go to 150% long in Alpha Fund.

Mrs. B continues to show incredible restraint in shopping for bargains in investing a substantial amount of cash. Amazing … a master at work.

Some Memories

I remember orientation sessions in 1981 as I started work fresh out of business school at a major Wall Street firm. A US Treasury bond trade came to speak one afternoon. His eyes were wide open in fear, and he spoke quietly and slowly as if in shock. At the time I think US Treasury bonds were priced to yield about 14% and the Prime Rate was over 20%. He just said there was no liquidity and no bids for bonds. And then he repeated himself. After a few minutes of desultory talk, he left.

I remember that black Monday in 1987 when the stock market fell 22% in one day, due to that great financial innovation called "portfolio" insurance.. The market had fallen a total of 33% from its prior high in mid August.

I have memories of massive unemployment in 1974 and gas lines as the first oil price "adjustion" caused a massive recession in all the world's economies. Stocks fell about 40% in that period.

This seems so much like those periods, but differs in details. And unfortunately it did not have to happen. Just like 1981 and 1987 events. As for 1974, perhaps that need not have happened either except for OPEC greed and desire to use oil as a weapon.

But one can look at the 100 year wall charts to see that a grand new time of prosperity will eventually occur as long as governments don't start fighting each other either with trade wars or militarily.

Word of the Day

"Ague" - noun [$10]
Ague means 1. (historical) a malarial fever with cold, hot and sweating stages; 2. a shivering fit.
Sentence: As the markets' ague continues, the Fed & Treasury cures are being fed intravenously now. Will the fever peak & break soon and how low will the recovery take ?