FINCON = 2

DJ30 – 12,862   up 157
US Treasury 10 Year Bond – 1.95%    up 0.12%
USDEUR  -  1.3160
Gold – $1721  down $31
Oil – $97.77  up  $1.77

Stocks were up 200 points for the week – more from the unemployment number than anything else.  Interest rates went sideways as expected.  The Euro went sideways.  Gold was down $10 for the week – it needed a break from the continuous gains.  Oil was down slightly, but more sideways than anything.

Updates from this week…….

In Europe, here are the headlines, and lack of progress:

1. No agreement yet between the Greeks and their bond holders – but it does appear that the bond holders are agreeing to a 70% loss on their investment.
2. No agreement between the Greek government and the EU/IMF/ECB to loan the Greeks the additional 130Bj Euro they need.
3. A surprise – the Greeks need an additional 15B Euro that no one knew about last week.  A big scramble to figure out who will pay for this 15B Euros.
4. The ECB may now take some sort of haircut on their Greek debt – but the last thing I heard was they were going to forgo the interest due on their Greek bonds, but demand 100% of the face value.  This is still a major development in the world of debt restructuring as it has not happened in the past.  (It is good to be king.)
5. The Greeks are continuing their debt talks into this weekend.
   

In the USA,

1. Romney surges ahead as the GOP candidate.
2. Unemployment fell to 8.3% from 8.5% as the economy created a whole bunch of new jobs in January.  Looking under the hood of this announcement shows that over 1.5 million people fell off of the unemployment rolls – so what does this % mean?
3. The jobs gain was a great thing for America, and let’s hope it continues.

Here is how this “legal, but fraudulent scheme” worked.  Freddie took a bundle of high interest rate mortgages, and stripped them into two parts – the principal part, and the interest paying part.  They sold off the principal  part, and kept the interest paying part.  The longer and more interest was paid – the more that Freddie Mac made.  No doubt they were motivated to NOT allow those high interest rate mortgages to refi into lower rates.

If too many borrowers refinanced their mortgages, the huge Freddie Mac investment portfolio would lose money.

This is simply outrageous.  The portfolio trades put them squarely against the homeowner.  Shocking – simply shocking.

So, here are the questions that I ask you:

1. Where was the government oversight that protects Americans – after all, Freddie Mac is a government owned organization.
2. Why is Freddie Mac even allowed to make any “portfolio investments”?  Shouldn’t Freddie Mac be restricted to facilitating the mortgage market – as we all know they have been doing over the decades?
3. Who was pulling the strings in the background on all those government ideas on how to “help” the American homeowner who was being foreclosed or was walking away from their mortgages?
   

No wonder all those government schemes to refinance the “underwater” home owners failed.  Freddie Mac had to be against them – in a big way.

I clearly blame Congress and the President – for their utter failure to protect Americans.  These portfolio “gains” undoubtedly contributed to the massive “bonuses” that Freddie Mac executives were paid during the past 2 years.  Disgraceful.

Here is one way to think about our Congress —–

Just think about those statistics for awhile, and it should make you darn mad.  Vote soon, and vote often.

BIG Commercial Banks……

The big banks are fighting the Dodd-Frank legislation tooth and nail.  Here is one fight that is going on right now.  These “too big to fail” banks – ones that have been bailed out by YOU, the taxpayer – want to EXEMPT derivative trades happening in their overseas branches from the Dodd-Frank legislation.  Today, this is about half of those trades.

Why would the big banks want to exempt overseas trades?  So, they can skirt the legislation, of course.  No other reason makes sense.  They claim that they will not be “competitive” overseas if they are not allowed to exempt those trades.  And, that may be true.

However, let me ask these questions:

1. What stops these big banks from moving ALL their derivatives trades overseas – thereby skirting the law totally if allowed to?  (Nothing, or course).
2. Wasn’t the Dodd-Frank legislation meant to “control” this trading?
3. Haven’t these big banks failed in our “trust” – after all, they are the ones who brought down the system in 2008.  Why should we trust them now?
4. If these big banks trade overseas, can they bring down the “system” again?  (Yes, of course.)
   

Those question make things pretty clear – now let’s see what our worthless security agencies do to protect Americans.  So far they have fairly failed in their duties.

Well, there are pockets of resistance out there today.  The Parisians make fun of the Quebecois (Canadians, of course) – who don’t use proper French at all according to these experts.  And, right next door, the Belgians pronounce ninety as “nonante” and not “quatre- vingts-dix”.  Even the rich Swiss francophonies have rebelled against the Parisian mandate of correctness.  Yes, these 3 outlying communities have their own sovereignty – but what about the French citizens themselves?  Can they express themselves the way they feel they must?

The answer is yes and no.  Or, more correctly “non.”

The French can speak French any way they want to, and no one really pays attention to them.  However, god help the Frenchman or Frenchwoman who writes a letter.  The written French MUST be perfect.  You are expected to only write a letter when you have a dictionary at your elbow.  If you dare to make a mistake – perhaps not using the subjunctive when you should – you will be “judged” by the reader.  Also, don’t forget those insidious accent marks above and below the letters.

In fact, if you are applying for a job, you must include a hand written explanation of why you are applying for the job with your job application.  This letter is used to “judge” your suitability for the job – and you better not make a grammatical mistake.  In fact, you better use the very best penmanship too – as that will also be judged.  Some companies use experts who determine your suitability of personality – as derived from your handwriting.

The French have a committee (in Paris, of course) of 50 language experts who determine what is proper French, and what is not.  They are considered the source of all knowledge – and no one dares to oppose them – except those sovereign nations who won’t be ruled from Paris.

Now, back to the topic.  Learning French is fun.  Speaking it is not fun.  The problem with speaking French to someone is that they immediately talk back to you (in French) and you are expected to understand them.  Good luck.  Personally, I find it much more interesting to learn the French culture as it exudes from the French language.

For example, would you say “It’s good” (when it is) versus “It’s not bad.”  C’est bon. Vs. Ce n’est pas mal.”  Positive Americans usually use the positive.  The French favor the negative.  Americans would think these two statement are about the same – but they are very different in French.  In fact, “ce n’est pas mal{“ (with a smile) is generally more positive than “c’est bon.”  Why?  Because the French love to speak negatively – and express things negatively, much more than Americans.

Let’s explore these differences some more. I got trapped into speaking poorly by learning that a chocolate croissant in Belgium was a “croissant au chocolat.”  But, ah bons, here in France it is called “pain chocolat.”  Now why would anyone want to call a chocolate croissant – a chocolate bread?  Only the committee of 50 in Paris really knows.

Most important in French society is “le relationship (relation).” – you figure out which is English and which is French.  When Christine and I went to our favorite little café at 11:30 just next to the Marche Provencale – which was packed with proper French speaking people because it was raining today – we were allowed to sit at one of their indoor tables (already set for lunch) to have coffee and hot chocolate – after Christine said “Is it too late for coffee?” in French, you translate it – I had the coffee of course, as I love to get ripped off when I pay for those 15 drops of espresso.  The waitress – who we know, and we are on a first name basis – Monsieur and Madame – allowed us to break all the rules of restaurants (written by Michelin – a tire company) and mess up an already set table.  Luckily we showed our due respect for the restaurant by throwing one of the glasses on the floor, and shattering it.  The noise (le bruit) from the shattering glass had the waitress coming after a respectable amount of time with a broom.  This proved to me that breaking a glass is the right thing to do in any French restaurant.

When I saw that they were serving one of my favorite dishes – Pave de Boeuf – today as their Plat du Jour, we immediately decided that it would be much more fun to stay for lunch than to walk in the rain.  Mine was great – a pointe, of course – with thinly cut potatoes and deep fried (like a French Fry) and a stuffed tomato – and I think they serve potatoes with tomatoes because they rhyme – but not in German.  Christine had a great hot Chevre salad (that’s goat cheese for those of you who prefer goats to sheep).

So, coming back to French, I mentioned to the waitress – Madame – that the meal was “ce n’est pas mal” and she smiled widely at the grand compliment.

FINCON = 2

DJ30 – 12,660   down 74
US Treasury 10 Year Bond – 1.90%    down 0.03%
USDEUR  -  1.3220
Gold – $f1738  up $11
Oil – $98.40  down  $1.30

Stocks lost a little during this past week, but stayed near its peak for this year.  Bonds gained on fears in Europe – and also went sideways.  The Euro gained and this is a dilemma – perhaps only speculators.  Oil was sideways during the weak.

Gold was the big gainer this week by increasing $80 – every day was an up day.

News Summary……

Agreement between the bond holders and Greece has yet to be made.  It’s interesting that this is dragging out so long.   I still believe that the bond holders hold all the aces and are waiting for the politicians of Europe to cave in.

Germany is now asking for Euro-cratic control over the Greek budget process.  I find this amazing – and a massive power grab by Germany.  Germany is trying to figure out how to deal with an EU nation (Greece) that promises, but never delivers on its budget promises.  However, this proposal is way outside of the EU treaty, and if I were a Greek, I would bring my pitchfork into the streets.

This is the week at Davos where the rich and elite rub elbows.  Nothing ever comes out of Davos publically, and it won’t this time.  It is a time for PR and for people to meet people easily.  Nothing more.  I think the differences of opinion don’t allow any concensus to be reached at Davos – while there are still extreme views on how the world should be organized (for self-serving reasons).

Fitch downgraded the ratings for Spain, Cyprus, Belgium, Italy and Slovenia.  In effect, they were following the lead of S&P who downgraded them a few weeks ago.

In the US, the GDP came in at a meager 1.7% for 2011, and 2.8% for the 4th quarter.  The 1.7% is well below the FED desire for the growth rate of the economy, and the FED announced this week, it has its finger on the trigger of a QE3 (buying more US bonds).  This announcement lead stocks higher, but had a very dramatic effect on the gold price with a $45 rise in a day of the announcement.  In reality, there was nothing new in the FED announcement – as previously given to you in the economyguy.

Just one point to make about the 1.7% GDP rise.  The inflation rate is higher than 1.7% today – so that means we are actually shrinking when inflation is taken into account.

This provided a great coffer of money in the US Treasury, and allowed the US to somewhat control the price of oil, as the US controlled the value of the US Dollar.

As time went on, the price of oil increased, and the use of oil increased around the world.  The money poured into the United States, as the oil producing nations bought US securities.  All of this supported a strong US Dollar.

What’s happening now……

There are several bilateral deals being cut to price oil in other currencies – local currencies.  Even more interesting is a “rumor” that India cut a deal with Iran to price its oil in “gold,” and the deal is being brokered (banked) through a Turkish bank.

If the Dollar is not used for oil purchases, the Dollar will weaken, and weaken quickly.  The world won’t need those Dollars that are floating out there, and greasing the oil purchases today.

Did the US go to war in Iraq to protect its oil supply?  That’s what people say, but perhaps the US goes to war to protect the “petrochemical system” that props up the Dollar.  These go hand in hand.  Isn’t it interesting that in 2000, France convinced Saddam Hussein to sell its oil to Europe for Euros?  That was a blow to the Dollar, and that was the beginning of the end for the Dollar – but no one knew it at the time – at least not the public.  The invasion of Iraq finished off that foolishness for the next decade.

But, the US Reserve Currency system is under attack again today.

Iran has lots of friends around the world who need the Iranian oil for various different reasons – Greece (because the Iranians will sell oil on credit), Venezuela (who have some joint projects with Iran – like a new bank creation), India, China, etc.  Many of these countries are not “friends” of the US, and would like to see a weakened Dollar.

If this hypothesis is correct, then the chain rattling in the Straits of Hormuz has everything to do with the idea that nations want to NOT use the Dollar for oil purchases.  That is thought provoking.

My conclusion…..

Gold continues to solve many of the problems facing your personal investment decision.  Gold would only benefit from a devalued Dollar.

Thought you might like to think about this.

Christine Lagarde, the head of the IMF, just said that the EFSF needs a date for when it will move (an additional 500B Euro) into the ESM, and the sooner the better, and it needs MORE money.  The purpose of these funds is to provide a “firewall” between Greece and the other nations – specifically Italy.  However, it is obvious to the most casual observer that the EFSF doesn’t have enough to bail out Italy, let alone Portugal and Spain and whoever else.

The German Finance Minister said this weekend that increasing the ESM is not under discussion – in other words, it is not politically correct for Germany to agree to any increase.

The reason that the IMF, with the US being the biggest contributor of its funding, has its nose in this issue is that it provides about 1/3 of the money for all the past bailouts – like Ireland, Portugal, and now Greece.

Where does this money come from……

Now let’s use some pure logic and talk about these big numbers.  The money comes from the nations in the EU, and they are “promises” only.  That means they are not real until the need to use the money happens.  Then what?

Then, the nations have to put up the money – they actually have to lend the money to the EFSF or EMS – and put that money on its fiscal books as a loan.  My first point is that more lending is not the way to solve the problem of too much debt. (It’s like solving a alcoholic problem with more alcohol.)  My second point is that every European nation suddenly looks “weaker” in the eyes of the rating agencies, and on its fiscal balance sheet.  Where does this money come from?  Will the nations have to tax more, or spend less to create the money?  I doubt it.  I think they will just carry the money on their books, and sigh.  It will be explained away as an “extraordinary” expense that will somehow, someday come back to it.

But, what if it doesn’t?  What if it’s lent to Italy, and then Italy leaves the Euro and defaults on the debt?  That’s a good way to drag all of Europe down the sewer with the Greece’s of Europe.

No nation is immune.  While Germany was spared from the rating downgrades of S&P, it was not spared by another rating agency last week, when it was downgraded one notch because it was supporting so much of the European debt.  France is spending way too much money on its government employees, and is having a major unemployment problem at the same time.  All the nations are in contraction (recession.)

My very strong belief is that Greece will not default this time around, and will be bailed out by the EU/ECB/IMF.  But, later this year, Portugal will raise its hand, and say that it needs the same “voluntary” downgrade of its debt, and another bailout.  When that happens, Ireland should be the next to raise its hand.  Somewhere along this story, the idea of a country leaving the Euro will be “seriously” discussed by the European leaders – as they look over the cliff, and don’t want to fall down there themselves.

What does this mean to you…….

The US is bailing out Europe in so many ways.  We had the “swap agreements” where the FED “loaned” the ECB an unlimited amount of money – and the ECB gave the European banks 600B Euros worth of it.  That was ALL US money.

Any IMF loans include US money – and a lot of it.  Greece, Portugal, Ireland, and now Greece again – all have IMF money included in their bailouts.

If Greece or any other nation actually defaults, the banks of Europe who hold that debt will be bankrupt immediately as their nations allow European banks to leverage their reserves by 30 times to 40 times.  So, a small default on any debt held could easily wipe of the entire reserve amount – and cause bankruptcy.  Then, there will be a massive loss in the US banks – by payout of “debt insurance – credit default swaps” and loss on any European sovereign debt held.  The FED would come to the aid of these US banks – and guess what, YOU get to bail them out again.

There are an unlimited number of ways that the FED can spend your money – and you will pay in the future through increased inflation.  Even the Federal Government may feel sorrow for Europe and spend real taxpayer money out of our fiscal budget – thereby increasing our deficit.  Doesn’t that give you a warm and fuzzy feeling?

More on Greece…..

The European leadership made a very big mistake early during the Greek crisis – about 2 years ago – and thought that Greece was having a liquidity problem (not enough money) and by lending them money via a bailout, Greece could work their way out their problem.

Then, they got smarter, and understood that more money doesn’t solve the problem, and they thought (now think) that reducing the total Greek debt (through a voluntary default – bankruptcy) and providing more money through a new bailout and having Greece reduce spending through a severe austerity program, then Greece will be able to work their way out of the problem.

In the background, the European leaders understood that a Greek involuntary default would decimate the European banking system, so the leaders became committed to “helping” Greece – and they also had the ECB give that 600B Euro liquidity injection into the European banks to bolster them.

But, the European leaders have got it wrong again.  You see, the current Greek plan won’t work.  Greece will default in the future.  Why?  Because they are;

1. contracting in their economy;
2. spending less by the government
3. decreasing their exports as they are not competitive with other parts of Europe.
   

You cannot do all 3 of these at the same time, and survive.  It is mathematically impossible.  So, Greece will come to a bad end, and the current actions regarding Greece are only “kicking the can further down the road.”

Naturally, this went through the courts.  In 1953, a judge overruled the government and said the government only proved its case through insinuation and rumor, rather than proof.

These big banks have continued their cartel activities from that date to now.  There are fewer big banks, but they act the same way.  When an M&A activity occurs, it is priced using the “Lehman Bros formula” – even though Lehman Bros is long gone.

As you all know, there is too much self interest in the workings of our government, and no one appears to be working for the common man (and woman).  The Dodd-Frank bill did not solve anything – as the same problems the brought down the US economy in 2008 could happen again today – with no laws or government agencies standing in the way.

The more things change, the more they stay the same.

This is the end of the history lesson.

I conclude that you must protect yourself.  Do this through knowledge and insight.  Protect your wealth, and grow it by assessing the risk of each and every investment.

One of those big spots is filled in with two different colored concretes – one color is beige, and the other color is grey.  Now, why would the sewer people use two different colors?  Do they anticipate the sewer to leak again, and to stain the beige a little darker?  Only they know.

One other complaint.  They didn’t put back those pavers that they removed from the sidewalk in the first place.  So, now the walkways is both pavers – the original ones that weren’t moved – and concrete laid flat in two colors.  Perhaps it looks better in French – les deux couleurs.  I guess not.

The New Restaurant…..

Today, I will relate an adventure at a new restaurant – new to me, and new to the town of Antibes – only two months old.  To find this restaurant, you need to be lost in the alleyways of Antibes, and it would help if you had a lot to drink too – as you have to find this place that has no sign outside.

You see, according to the proprietor, she spent 4 months filling out paperwork before she could open the place – and have inspections, etc. – and she has been open for 2 months – and next week, she will get permission to put out a sign – only 6 months.  I don’t think the sign will help, as you must be lost to see the sign in the first place.

The restaurant consists of a single table – fascinating isn’t it?  The table has 10 seats – so you are eating family style with the other guests.  The restaurant serves soup.  In fact, it turns out she serves 3 different soups, so you have a choice.  Wine is cheap – and is good according to the owner.  I agree.

If you are sitting in the seat I was sitting in, you didn’t see the menu on the wall behind me.  My wife saw it, and said I should try the entire menu – 3 courses starting with soup, then a charcuterie or fromage dish, and then desert – all for 7.50 Euro.  All the food is freshly made on the day – except the charcuterie because they killed those animals a long time ago – and the cheese was prepared a long time ago because it is “aged.”  Otherwise, it is fresh.  No sugar in the desert – as it was made with honey and fresh apples – a kind of an apple pie without the shell – and no seeds either.

Archeological Site…….

From lunch we went over to see our friends who own a great restaurant called La Forge.  They have been closed for the past few days as they were demolishing a wall at the back of the restaurant.  They  wanted to expand their restaurant – knew there was a space behind that wall – and didn’t know anything else.  They had to get permission to knock down the wall – as the last person to see that space is now dead.  The space was built by the Romans – so it falls into the category known as “old.”

They had a small backhoe inside the restaurant to move the boulders that came out of the wall they dismantled.  I now think that a backhoe is an essential tool for all French projects.

We saw them working one night, but couldn’t spy all the way into the hole, as there was so much dust in the restaurant that you could only see past the first few tables – and not all the way to the bar – the essential part of any French restaurant.

They started cleaning the dust out of the restaurant last night – and they did it a second time today – as the dust keeps settling.  Those Romans must have been very dirty people.  Here is a photo of the finished hole in the restaurant.

I was hoping for Roman coins, or a nice statue of Venus, or perhaps some shields and swords – but, as luck would have it – none of that was buried in the wall, or in the room behind the wall.

Well eat there tonight – so perhaps there is much more to tell.  Perhaps there is some old Roman wine to enjoy. Or an old pizza.  Did the Romans invent the pizza – I don’t remember.

Antibes Today…….

For those of you who think I am joking about the great weather here on the Med, here is one from today:

It shows the local beach just steps from our apartment, and the Med with sailboats behind it.

FINCON = 2

DJ30 – 12,720   up 97
US Treasury 10 Year Bond – 2.03%    up 0.06%
USDEUR  -  1.2935
Gold – $1658  down $4
Oil – $98.15   down  $2.24

Stocks were up for the week a very large 300 points as the markets assumed the Europeans were solving their problems. Bond interest rates were up a large 0.20% on the week.  The Dollar fell and Euro gained about 2.5 cents on the week.  Oil fell about $0.15 on the week – sideways.

Gold continued its technical climb upward, and is now $104 price at the start of the year.

Roundup of the Week’s News…….

In Europe, there was no progress on the Greek bond talks, other than talking, regarding the Greek crisis.  The talks dragged into the weekend – so we must wait for the results.  Everyone (including myself) is assuming there will be an agreement, and a compromise will be reached.

Here is what is being proposed.  The Greek government will only give the bondholders 50% of the face value of their existing bonds, and will replace the remaining 50% with a new 30 year bond paying 3.5%.  If the bondholders calculated the market value of the “new bond”, they find it is worth much less than its face value – the end result is they would be taking about an 85% haircut on their original bond investment – one that everyone thought could never default – except me who has been saying the Greek’s would default 3 years ago.  They are extremely angry over this result – as the exact, same bond held by the European Central Bank will receive 100% of their face value (rather than 15%) – and for some reason, the bondholders think this is “unfair.”

This deal would eliminate 100B Euros from Greece’s 350B Euro total debt – supposedly making it easier for Greece to pay back the remaining 250B Euros.  The deal must be reached for the EU/ECB/IMF (the troika) to approve a 130B Euro new loan to Greece – and the bonds being negotiated come due in March 2012 – so the new loan is needed now, or the repayment can’t be made – and Greece would default – kaboom.

European leaders want this agreement very badly, so lots of pressure is being made behind the scenes.  Here is what could come out of the debt talks:

1. The 3.5% interest rate on the new bonds could easily become 4.0%.
2. The ECB held Greek bonds could be cut too – interesting!
3. The bondholders could receive EFSF bonds, in addition to the new Greek bonds – so the deal is sweetened – and this smells like a deal with the ECB.
   

It appears to me that the bondholders are holding all the aces for sweetening the already bad deal in this high stake poker game – and they will win the hand.  I wonder what other concessions they might receive.  By stringing the negotiations out, their hand becomes stronger and stronger.  The bondholders can’t be too greedy, or the Greek’s will just default, and they will get 0% back.

G20 Talks in Mexico…….

The G20 wants to help the IMF raise $600B additional money in its already existing $600B bailout war chest, and needs the Europeans to agree to it.  Earlier this week, Secretary Geithner said the US would not add to the IMF money.  It is not obvious how the Europeans can afford this additional money – but if you look at it as just newly printed money, there is no problem.

In any case, why would we want the IMF to have more money?  Who are they going to bail out?  The Portuguese?  The Irish?  The Italians – impossible, of course. Etc.  This is a major power grab by the IMF, and many governments can see that by giving the IMF the power to dictate the terms of new loans – they can be left off the hook of any austerity measures.  David Cameron, UK Prime Minister, said he would support the IMF increase in bailout funds – and this is about $25B for the UK – where do they get the money?  Same place – warm up those printing presses.

But the US already bailed out the European banks with its new swap agreements that has resulted in 600B Euro loans to the European banks – and allowed those banks to buy new sovereign debt.  In effect, the US is bailing out Europe – again – all by itself.

Keystone XL Oil Pipeline……

President Obama decided to NOT build the Keystone XL pipeline, and has blamed the Republicans for not allowing him enough time to make a decision.  Naturally, the Republicans want to make this an issue during the election – and Obama has given them the issue.  The result of this decision:

1. The pipeline won’t be built, and a LOT of jobs are lost – some say 44,000 jobs, and some say 30,000 jobs – I don’t care, it’s a large number.
2. The pipeline won’t be able to do any ecological damage, or spill any oil – because it won’t be built.  One for the Democrat supporters.
3. The Canadians (where the oil originates) will be building a pipeline to their west coast, and selling that oil to the Chinese instead of Americans.  That should make you sort of angry.
   

You see, America could permanently lose a major source of oil from Canada for a long time as long term contracts would be signed with the Chinese.  Is this the type of oil independence (from the Middle East) that Americans want to have?

So, we have a real debate on our hands.  Is it better for Americans to have a “clean” America (even though it is covered with existing oil pipelines that don’t leak today – I haven’t heard of any leaks), or is it better for Americans to become energy independent?  The answer to this debate will have an outcome in November – so we will have to wait and see.

Remember – vote soon, and vote often.