In virtually every neighborhood in every town, in every state there are houses sitting empty. At one point there was a living breathing human being in the home, but they couldn’t pay the mortgage any longer. Granted some of them were hucksters that should have never been in the home in the first place, while unfortunately there are many thousands that simply took a “double whammy” when both the husband and wife lost their jobs. Now our deep pocket buddy – Uncle Sam,  has declared many times that he was going to implement strategies to help people stay in their homes via loan reworks, etc . Hows that been working? Well, not so hot.

So, let’s kick this can for a minute shall we? Let’s suppose that you are a fairly well educated person, that worked hard to buy a house. Then, because of the economic downturn, the job you had paying 22.50 an hour at the water pump plant “went away”. So, you start looking and looking for something to replace it. But, all you can find are sales jobs that pay commission only, or 8 dollar an hour retail jobs. It doesn’t take long before you’re starting to lose ground. Soon enough you’re missing a payment on your mortgage.

I use this example because I know of someone personally that found himself in this position. But stick with me because it gets more bizarre. He had missed two payments and the bank was on him hard. Now this wasn’t someone with a 0 down adjustable rate gimmick mortgage. He had placed the full 20% down on a fixed interest rate 30 year mortgage. So  naturally he called them  and explained the situation. No dice, they played hard ball with him. They didn’t want lowered payments or Interest only for a while. Nope, it was all or nothing. Within 6 months he was pretty delinquent. He was down 3 payments, despite taking a job at the local grocery store. I could tell he was desperate. So, I “got involved”.

I asked the bank that if I paid his late payments, would they restructure him for just a period of 6 months lowered payments, which they could tack on the end of the mortgage. The answer sort of stunned me. They said no, and in fact foreclosure actions were already in the works. I came away with the feeling that something didn’t make any sense at all. Well, the long story was that he was foreclosed, and he moved to Las Vegas to live with his brother. The house became empty. And, there it sat. And sat. And sat. The weeds grew, the grass grew, the trees grew. At one point a storm cracked the picture window. No one would come out. No one cared.

Now think about that a minute. Here’s a guy who made payments for 9 years. Lost his job. Just needed a bit of help to get back on his feet. Not only wouldn’t they listen, they almost appeared glad he was getting kicked out. Nothing made sense. None of it. Now we fast forward to the 2006 – 2009 time slot. Millions are in the same boat, or worse. Yet try as they might to do workouts, or what have you the numbers are staggeringly small. Now granted, it is NOT GOOD for the overall economy when someone buys a house for 300K, and then does a rework to make payments as if it was a 200K house. “someone” had to eat that difference and it was the bank, and if enough people do that the bank is insolvent. I get it. But judging by how many short sales I saw not going anywhere, and how many times people I know tried to buy a foreclosure home with no good results, I had the feeling something wicked was wrong with this entire picture. I just couldn’t put my finger on it.

The answer it seems is that “some” banks are making a fortune keeping the foreclosure house instead of doing a rework. At first this might sound trivial, but please folks, follow along on this one because it is NOT trivial. We are talking sums of money that the FDIC is burning through, that must be replaced by who?? Yes you and me and the stupid taxpayer once again.

One that is making a lot of noise recently was the Indymac story. See, in July of 08 Indymac was closed. Then the Assets were sold to One West bank in March of 09. Guess who owns One West? A Goldman Sachs VP along with other such wonderful people as George Soros. Well as you’ll see in the clip below, through the ultimate in Sweetheart deals, One West bank makes HUGE money, over 100K dollars on just one deal.

Please folks, take the 7 minutes out of your life and watch this:
http://www.thinkbigworksmall.com/mypage/player/tbws/23088/1459958

Now isn’t that special? Is it any wonder these mutant banks won’t work a deal with the original buyer? Hell no they won’t why should they? IF they work a deal with a good honest hard working person that fell on hard times, they might lose a few bucks. If they foreclose and kick the poor family out on the street, they stand to make a fortune as the FDIC “rewards” them.

Yes the Indy Mac/One West story is a year old. I know that. But I hadn’t put two and two together on the FDIC until they started running out of money, and then borrowing from the Fed and then making member banks pay 3 years of  “protection” up front. These sweetheart deals for the banks that made a fortune selling mortgages, is bankrupting the FDIC, and they just come right to Uncle Sam and put on the dog and pony show, and get MORE tax dollars. I ask, does it ever end? Why can’t Americans understand that they are being looted every single day by their own Government? Once again in the ultimate of hubris, these slime balls that created CDS’s and toxic soup mortgages, get to make even MORE money by looting the Taxpayer. Give me a break thank you.

But it never stops, it really doesn’t. Here’s a catchy headline that ought to make you just yearn for a rope to hang yourself with:

Citi plans crisis derivatives

Credit specialists at Citi are considering launching the first derivatives intended to pay out in the event of a financial crisis. The firm has drawn up plans for a tradable liquidity index, known as the CLX, on which products could be structured that allow buyers to hedge a spike in funding costs

Excuse me? More derivatives to add to the 600 TRILLION in derivatives floating around the world already? Are they really that desperate for the next Lehmans, that this group whom barely escaped bankruptcy, should be creating even more bizarre options?

As the bankers loot what’s left of America, one has to question just exactly what our dear boys at the Presidents Cabinet are considering doing next. Larry Summers comes to mind. Not long ago he was suggesting that we needed a lot of stimulus, real fast, and then pull it out. Now he is saying things like “sustainable stimulus”. We have Bernanke making noise that he’s going to work on an exit strategy, when we know darned well that there’s no way to do that without crashing the economy. So what’s the plan here anyway? We know we’ve been hearing about my prediction they’d raid 401K’s and turn some of them into annuities, so have they been reading Koo’s book?

Here’s the deal folks. There is NO WAY OUT of the mess the world is in. Benji thinks he knows what to do and it’s all about monetary policy. He think’s he’s a scholar of the old depression and thinks manipulating the monetary policy can solve the problems. Let’s forget the PIIGS for right now, let’s just talk about the US. Come November there’s going to be mid term Congressional elections. All the incumbents want to remain incumbent. So, they are going to press for all the stimulus money they can get. They will hope against hope that if the economy appears to be improving, they can save their necks. Okay, so that’s all baked in the cake. There will be ever increasing stimulus.

What I’m more interested in, is the “longer range” plans these lunatics are going to try and come up with, because although virtually none of them are going to work, Lord knows these guys will try them. One of the theories that they are probably looking at quite heartily is the “revised Japan” concept. This will be interesting if I’m right about that. So, what’s that all about? Stick with me.

No matter what you might believe, there is no politician today with the backbone  to do the things that are really necessary to create a lasting economic recovery. Why? Two reasons. One, I’m pretty sure that America has been systematically taken down “on purpose” by policies emanating from the Global planners of the UN, Trilateral Commission, etc. The ever present movement toward a socialist/fascist state is so evident, that it is now mainstream chatter. Second, the real goal of every politician is to remain a politician. He doesn’t care about you. He doesn’t care about half the baloney he spews. What he cares about is control and power and STAYING in power. Knowing that to readjust our economy to a solid thriving growing eco-base would create periods of “pain” along the way,none of them have the moral backbone to do what’s right because the people who count on them for freebies and handouts would vote them out.

So, if they aren’t going to do what is really necessary to create a sound economy, they’re going to have to rely on tricks, schemes and theories that the think tanks produce. One of the theories that they are going to look at quite seriously is the idea of “borrowing” our savings, and using them to create massive work projects and infrastructure improvements. This is the basic “let’s do anything we can to buy time” maneuver, and hopefully in a few generations we’ll figure out how to deal with the debt loads. The problem/question is, can a world of fiat money actually last long enough to make that a worthy plan? I fear that time will tell.

In its basic form, when you get an exploding bubble, people finally figure out that they have to repair their balance sheets. So, instead of spending, they begin saving. Some of that is forced, as they don’t have the ability to spend any longer and some by willful participation. We’ve seen that over the past two years as the savings rate has risen dramatically. Well, in a consumption society, if people are saving instead of spending, then you start to see the deflationary spiral begin to show up. Benji’s approach has been to cut rates to “zero” while mopping up bad loans, etc, while at the same time, injecting monetary stimulus. So, how’s that working? Frankly, not so well.

I told you all years ago that there would come a time that Uncle Sam looks at all the money sitting in 401K’s, Pension plans, etc, and try and “use” them. There’s trillions of dollars sitting in savings, and Uncle would sure like to use them. Sure enough in the past couple months they put out “feeler” stories suggesting that maybe people should have the option of using a portion of their 401K’s to buy government “annuities” ( read that as treasuries).  That was simply to gauge the reaction to the suggestions. But hear me now okay…they ARE going to borrow your savings. Whether you do it volunarily via a new program they design to allow your 401K to buy Gov’t T bills, OR by bypassing all that and borrowing from the banks/institutions themselves.  

If you’re lost, let me pull you in here a bit. Think about it like this. Right now the Treasury needs money, so the Federal Reserve “prints some” and buys T bills. Then we have to pay the Fed back with interest. Meanwhile in 7000 banks and institutions, trillions of dollars sit in savings accounts, money markets, etc, and Uncle Sam is figuring “hey, there’s a goldmine sitting in the banks that we could sure use, so why don’t we MAKE the banks loan us those savings, at a better rate than we pay the Fed? Besides, it keeps the money “in the system” instead of us having to beg the Chinese and the rest of the world to lend us money”.  

So, you can bet folks, it’s coming. I told you it would and it’s on it’s way. They are going to get to our savings either through voluntary acceptance of a new “retirement” option, or a  mandate to the banks that they have to lend Uncle their reserves. As we speak the Money market industry has been in talks with the Fed, about how to set up this game. With over 3.2 Trillion dollars sitting in money market funds, and fund managers finding little in the way of “good investments”, they actually like the idea of a guaranteed Fed payback. And, what’s the good Uncle going to do with this new found goldmine? He’s going to spend it. He’s going to attempt to keep GDP rising via work programs, military programs, education programs you name it. It is going to be the mirror image of the revised Japanese plan, and the current Chinese plan all rolled into one.

Now of course the first question is, “won’t that mean we’ll be even deeper in the hole than we are now as far as debt?” You bet it will. But, once again I remind you of the facts. Politicians will not do what’s necessary to fix the problem, they will simply paper over it. The whole idea is to “kick the can” down the road for as far as the eye can see. If they can spend enough money to keep GDP from crashing negative, then they can point to this voodoo and say “see, spending is working, people are working. Pay no attention to that big fat debt bomb over your heads, we’ll work that out one day”.

Yet I have to ask the question. Can they spend and spend and spend without creating inflation? When Debt to GDP surpasses 200% like it is in Japan, that’s where you find 16 dollar hamburgers. According to Marc Faber of the Boom Doom and Gloom report, he says that all the major countries will default, yes Virginia that means the US too. I agree. It’s simply a matter of “when?”.  So here’s the take away folks. Uncle is going to continue to borrow and spend ever increasing amounts just to keep the GDP from rolling negative. There will be no slowdown in fiscal insanity, and our debts are going to continue to pile up until there is a coordinated global implosion. All these debt bubbles from Greece, to Ireland, Spain to the UK, are just floating around looking for a pin. It’s my guess they’ll find one. Stay long precious metals folks. Go over to Midas Resources or call 1.800.686.2237 and learn how to buy some. It’s really that important.

Now onto the market:

The wicked chop continues. The DOW and the S&P haven’t been able to put in back to back “up” days since Feb 1/2. what we get is 150 up, and then down 100 the next day. Or 65 up, and 140 down the next day. Taking positions is akin to suicide. A common scenario is that you buy XYZ on Monday, and by Monday’s close you’re up 70 cents a share and feeling good. Then Tuesday comes and all your gains are erased and XYZ is under where you bought it. That my friends is chop, volatility, and a money losing proposition.

Way back when the DOW hit 10,700 ( 3 weeks ago now) we sold our positions on the next dip, and except for very short term trades have basically sat on our hands. When the market is whipsawing you back and forth like that, holding anything for more than a day has proven to be difficult. Sure it’s all great fun if you enjoy daytrading. There is always an opportunity to grab 1000 shares of an ETF and sell it an hour later for a nice profit. But it’s really not what we enjoy doing. We like to be swing traders, taking a position and holding it for 3/5/10 days or more. Sometimes months. But right now that opportunity hasn’t been very present.

When the market enters a period of wicked chop like this, it “usually” signals a change is coming. Well if the market ran from March of last year to January of this year, then the most logical “change” would be one of a falling market instead of a rising one and I think that’s exactly what we’re going to get. Except for the manufactured counter trend rallies, I feel that the path of least resistance is going to be “down”. Yet the fact is, they are going to throw the kitchen sink at it, trying to force it to bend to their will and go ‘up”. Will they be successful?

A lot of the talking heads suggest that with the stimulus money that’s about to come to market, earnings are going to soar, and yes the market will rise. Well I have a question about that. Is all this stimulus money a secret? Doesn’t the market “know” it’s coming? Could it already have been priced in? Will the stimulus money counter the effects of headlines like this:

Corporate bankruptcies climb. Corporate bankruptcy filings rose 7% last month as compared to the year before, with an average of 342 businesses filing for bankruptcy every day in January. The data suggests 2010 will see more bankruptcies than 2009, even as the economy shows signs of improvement

Or this:

Pressure’s continuing to increase on wealthy borrowers, with serious delinquencies for prime jumbo mortgages rising to 9.6% from 9.2%, a 32nd straight monthly increase

Or this:

Defaults on FHA-backed loans passed 9% in December, ending the year at 9.12%, up from 6.82% one year earlier and 8.94% in November

With the Fed suggesting they’re going to stop buying bad mortgages in March, with the Commerical Real Estate market set to experience resets in the fall and into 2011, with jumbo loans imploding, with millions of foreclosed homes sitting vacant just waiting to come to market, it’s my guess that the most the stimulus can do is keep things moving sideways, not up. Frankly we’ve been looking for a mindless 3/4/500 point romp to sell shorts into, but so far we haven’t been able to manufacture one.

If we get a romp, we’ll ride it long, and then start shorting and buying puts. If we have one more leg down before a good bounce, we’ll short that lightly, and then flip to long for the bounce. It’s a traders market right now, and that’s all we can do.  Have a great weekend, and We’ll see you Wednesday evening.

PS..  If you’d like to see the exact stocks/options/metals and 401K moves we will be looking at for this week, please consider becoming a member of the “insiders club” located here: Click Here