Things coming into focus....

Mish has some interesting points in his blog today including
http://globaleconomicanalysis.blogspot.com/2009/02/triage-for-troubled-assets.html

His comments on the US guarantees....

My Comment: The centerpiece is insanity. The Government has already guaranteed $400 billion in bad debts of Citigroup and Bank of America. Now Geithner wants more. Note that the market cap of Citigroup (C) is roughly $19 billion and Bank of America (BAC) is roughly $27 billion. The treasury is guaranteeing $400 billion of debt on companies that would be worthless without those guarantees. Does this make sense?

Now watch this video - Who Owns America
http://youtube.com/watch?v=LWgAzgP5fko

Did it click?

From the video we know that the wealth of the country has been concentrated in the banks and the main owners of just about every major stock are in fact banks. The very same banks that have failed, that needed over 5 trillion in loans and guarantees to survive. I understand that they need to keep credit going, but more importantly what would happen if one more major banks failed?

First they would begin selling off their assets which include a lot of stock positions in companies like GE, GM etc. Lets say for example that GE was the first target and they had their stock pushed down 2 bucks. If 20 banks owned a combined 100 million shares that's a 1 billion dollar loss, instantly. The forced liquidation of say 1000 stocks in one major banks portfolio at 2 bucks a stock...now we are starting to look at some real money. If just one major one goes that could trigger the implosion of all of them and the complete collapse of our financial system. ATM's would stop working etc. Credit is an issue, but its the distraction issue. The real issue is the stock market because it ties directly to the pension market. This is the real implosion that they are desperately trying to avoid. Eventually the FED will lend to everybody to pay for stuff like farming etc. But the day of reckoning for the banks is coming soon.

I have a feeling the implications of DOW 6K are horrible. What does DOW 6000 mean? Pension and retirement funds have lost 40-50% of their value in 8 months. Tack on an additional 20% in losses and you will bankrupt most of them. That means no retirement for anybody. The commercial real estate bubble is coming and its going to cause a lot of banks to fail. The fed can guarantee as much worthless debt as they want the question is what happens when banks are forced to exit the stock market?

Unfortunately, I have to look back and say that Bush and TARP was right. They had to do it or we would be living Mad Max style these days. The system would have gone into a death spiral and the banks would have been forced to sell off their stock positions to raise what little capital they could and destroyed every bit of wealth in America. We are up to our eyeballs in debt now and the only asset left is the stock market. If it begins a march down the system could be finished and the nightmares real.

Gold
I think i am becoming more bullish everyday. People don't want to be in the stock market, they don't trust it anymore. Treasuries are not going to be trusted...what little money is left...where is it going to have to go.

GOLD, that's. Only perceived safe place.