Gold & Mortgage Failure Avalanche - Jim Willie - Dec 13 - gold to $1200
posted on
Dec 13, 2007 03:15PM
| |||
Gold & Mortgage Failure AvalancheJim Willie CB Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy. An avalanche comes in 2008. Its wreckage will hit both the USEconomy and banking world. The greatest deception in the bank sector this year has been the misrepresentation of the mortgage debacle as a subprime problem. That is akin to calling an iceberg only a problem for what one can see, when 90% of its mass lies below water. Ice is lighter than water. Most mortgage bonds are like acidic stones weighing down bank and investor balance sheets. Wall Street and the USGovt con artists, using tools are fraud and distortion, prefer the public and investment community to think of the 'Subprime Problem' as the source of distress. On mortgage bonds, collateralized debt obligation derivatives, structured investment vehicles, all dominant in the news, reports constantly stress how the problem is traced to subprime mortgages to all those unworthy home loan borrowers who never should have been given such loans, even at higher mortgage rates. The systemic threat, both to the US banking system and USEconomy, has entered a new stage. The remedy addressed is sure to force the USDollar lower and the gold price higher, to occur in the next gear. Breakouts are coming which will seem to lose control, like what was seen in September and October. OF DESPERATION & FIRE TRUCKS By summertime 2008, the requirements for a grandiose Resolution Trust platform will be etched more clearly. The key to the gold price lies in two spots: 1) massive monetary inflation to treat the banking problems and prevent recession, 2) realized price inflation in a manner lacking disguise. John Mauldin uses the metaphor of fire trucks being called to the scene. The USFed has been amazingly shamefully slow in recognizing the problems. Stuck in their stupid "inflation versus growth" framework mindset, they miss both the interbank system seizures and home mortgage avalanche coming outside the prime mortgage corral. The threat to the banking system will be staggering. The threat to the economic system will be broad and deep. The avalanche will expose the combined system as insolvent, broken, in need to total rescue. The damage will necessitate rescue platforms to undermine the entire US$-based monetary system, certainly sufficient to lift gold well past the $1000 level. By the time 2009 approaches, the system will be recognized as totally broken. The new question will be whether that system can indeed be repaired. As measures put in place and debated for consensus approval, the urgently demanded movement should be the particulars on the new Resolution Trust Corporation. The desperation no longer hidden (like on Bernanke's face) will lift gold well past the $1000 mark. The impetus behind the gold price will turn to inflation much more than the US$ counter-lever. All major currencies will be inflating heavily, as seen in recent central bank decisions either to cut official interest rates or to hold steady. Major currencies will begin to be compared in a manner to judge which ones are weaker as they are undermined during stimulus to discourage economic recession and credit flow interruptions. The new 2008 year will smash that notion, as an absolute avalanche of failed mortgages will slam the bank system and financial sector in general, the majority being prime mortgages. SHOCK & AWE IS RIGHT AROUND THE CORNER ON PRIME MORTGAGES, A FACT THE BANKERS ARE KEENLY AWARE OF!!! The villainous failed mortgages have a few traits in common. These primes are adjustable rate mortgages (ARMs) with harsh resets. They contain destructive features certain to cause as much pain as laughter for their insanity. Recall they are prime mortgages with lax features resembling subprime loans without the higher rates. A reaction to the incredibly flimsy inadequate Subprime Mortgage Freeze Plan, with dire descriptions of the prime mortgage avalanche can be found in the December special report to the Hat Trick Letter, entitled "National Bailout & Looming Mortgage Disaster." Only 150 to 225 thousand subprime mortgages will be addressed by this flimsy HOPE NOW freeze plan, and nothing among the looming prime mortgages heading for certain default. The innovative mortgage products face ruin. Large cross sections of newer mortgages, written since year 2000, are under-water badly. Their loan balances are much greater than their home values. THE NEW PHENOMENON IN 2008 IS RECOGNITION OF ZOMBIE LOANS, ZOMBIE HOMEOWNERS, ZOMBIE CONSUMERS, AND ZOMBIE BANKS. They are bankrupt without declaration; they are walking dead. An added footnote is needed to this auxiliary HTL special report, tied to accusations of fraud by large mortgage bond investors, both in the United States and foreign institutions. MOTIVE: AVOID LAWSUITS & FORCED BOND BUYBACKS Wall Street and other major bankers continue to soil their pants. They realize several looming tragedies:
As a preface, one should know that politicians did not advance this plan. The key initiators of the HOPE NOW project were three banks. It was an alliance led by the Federal Deposit Insurance Corp (insurer of banks), along with big banks and their lobbyists from Citigroup, JPMorgan, and Wells Fargo. These banks in my opinion are insolvent, soon to be forced into bankruptcy as the next round of the mortgage debacle unfolds from the 'innovative' adjustable and option laden mortgages. They all face bankruptcy, insured by the FDIC. If lawsuits are filed and that road is traveled, declared bankruptcy is assured. The rescues to save the Ruling Elite will lift gold and trash the USDollar, as much from a new unprecedented round of monetary inflation, as from destroyed image of the US financial system. Freezes never work. When in college, my memory is vivid of the lunatic Nixon Wage Price Freeze. When it lifted, the price inflation rampage was the worst in modern history. My suspicion is that when any mortgage freeze is lifted, both mortgage rates will rise sharply and mortgage bonds will fall sharply in value. Few have bothered to think about the infectious disease of moral hazard, to consumer and household reactions. Many economic participants will feel left out with the current rescue, against a backdrop of watching colossal fraud go unpunished. They will possibly act destructively, an intentional effort to destroy their credit rating so they can participate in national bailouts. Many live in homes with negative home equity. They might feel above the rules, immune to impact of their actions, engrained in destructive habits, feel powerful from a reprieve, want to be included, or just not care. They will feel they have nothing to lose. The likelihood that property taxes will be paid, water & sewer fees paid, lawns mowed, hedges & trees pruned, garbage removed, broken windows repaired, holes in walls filled, driveway cracks filled, shingles straightened, liens on the property resolved, these are all in doubt in my book. Pride in ownership will turn ugly, into a free ride game. Practicalities are strained to the extreme. A zombie comes to learn to act with disregard, disrespect, and disobedience. Henry David Thoreau wrote 'Civil Disobedience' almost two centuries ago in response to the Spanish Civil War, yet another false flag self-inflicted attack. That was done to the USS Maine vessel off the Cuban coastline. Expect such disobedience to be practiced widely in reaction. NOT A SUBPRIME PROBLEM ANYMORE
FASCIST BUSINESS MODEL ENTRENCHED Ultimately, a minimum of a $2 trillion bailout is necessary, as mortgage bond losses will be at least that high, especially when considering the leveraged CDO bond losses. The new bigger broader Resolution Trust Corporation must be created as soon as possible without delay. Urgency is here and now. The system is in the process of degradation, sure to lead to some increased disorder. The changes will be similar in England and possibly to some degree Spain, because they went overboard on real estate speculation. England built an economic dependence upon an inflated housing sector. Spain permitted uncontrollable vacation property speculation. Be sure to know that Wall Street firms are in charge of the solution to a disaster that they themselves perpetrated. Wall Street firms will want to be in charge of the bailouts, even the Resolution Trust Corp. Wall Street firms will want to be involved in the grotesque bailouts, since so much corruption and opportunity will be presented. Like the parasites they are, they sense gain. Think Halliburton and the Iraq & Afghan Wars, with profits abounding to insiders on cozy contracts. Think contractors in New Orleans and Hurricane Katrina relief. Think the next RTC administrators, with more huge profits. To even consider the fraud-ridden Freddie Mac and Fannie Mae for serving as the foundation financial agency for secondary market reinvigoration is a travesty. It is a blatant endorsement of the entrenched Fascist Business Model. FAILED INNOVATION IN MORTGAGES The key theme with innovative adjustable mortgages is their zombie nature. Resale is hindered, as is refinance, since the property is vastly under-water, loan balance greatly exceeding the home value. A return to similar mortgage loans is impossible, since they no longer exist. A loan rate freeze is a certified prescription for another zombie loan and zombie home title owner. Particular gratitude goes to ScottM in Seattle and that anonymous San Francisco mortgage broker who offered details after his personal experience in approving over $2 billion in mortgage loans himself. His information is appreciated, and needs to be made more public. Negative amortization mortgage implosion. This type loan has permitted home title owners to pay less than the appropriate interest amount, thus adding to the loan balance. When the loans hit their maximum negative potential allowance, a huge increase is forced which could result in required monthly payments not 20% to 35% higher, but 100% to 200% higher. The full interest requirement kicks in, based upon the full loan balance, having risen. Imagine a $1400 monthly payment shooting to $2800 or $4000! Prime second mortgages implosion. This type of loan enabled a huge number of home title owners to effectively invest 0% down payment in their original purchase. Many lending institutions have cut off further withdrawals from the home equity source, in a lockdown much like applying a tourniquet to a bleeding limb. Wells Fargo once boasted this spring not to be involved in subprime mortgages, but they possess $84 billion of these worthless loans. Expect Wells Fargo to go bankrupt. The bankrupt banks will not just have Wall Street addresses. Pay option adjustable rate mortgage implosion. Called 'Option ARMs' in the finance industry, this category will make national news for their insanity in negative amortization features. In volume, they will greatly eclipse the subprime story, since the loan type involves all risk levels of borrowers and all sizes of properties. Again, this feature enabled many people to buy far too large a property. Shocking statistics are cited in the special report, pertaining to these truly reckless loans. Bear in mind that homes have fallen in value, so underwater percentages in extreme cases of these loans might be more than 25%!!! Analysts estimate that on many of these Option ARM loans, home title owners are underwater by 15% to 20%. Many of these loans have seen their balances rise by 7% per year for at least three years. These loans are more disguised subprimes. The negative amortization features act like a timeduse to explode, in a situation offering no hope of refinance, no qualification for other loans, and no equity. They will go bust. Hybrid interest only adjustable rate mortgage implosion. The hybrids attracted borrowers by offering a fixed low introductory teaser rate for a fixed three, five, or seven years. After that period, they adjust annually. Again, this feature enabled many people to buy far too large a property. The 3/1 (3-year fixed, adjust every 1 year later) began to reset in 2006, with many more in 2007. The 5/1 will begin to reset in 2008, causing a nightmare. Many lenders offered Hybrid ARMs to lower quality borrowers. Plenty such loans did not require income verification. Like the Option ARM, the low teaser rate caused the loan balance to rise during the introductory period, thus leading to vast number of loans being under-water. Again, refinance or new mortgage loans will not be approved. They will go bust. CONCLUSION The effect on the USDollar and gold price is uncertain, but surely negative for the clownbuck and positive for gold. As Persian Gulf oil producers watch in horror, they will be increasingly motivated to cut their US$ formal currency pegs. The upcoming US mortgage debacle will kill the USDollar as the recognized practiced endorsed world reserve currency, with the abolition of the defacto PetroDollar standard certain. The gold price will rise amidst the absolute hurricane of low pressure asset deflation and colossal monetary inflation to fight it. THE GOLD PRICE IS CONSOLIDATING NEAR AND ABOVE 800, A DISPLAY OF STRENGHT AND RESILIENCE. My dire forecast for 2008 is that the USDollar DX index will find its way to 65 and the gold price will find its way to $1200 per ounce. A 10% to 15% decline in the USDollar comes. A 30% to 50% rise in gold comes. The positive rub to investors is that as the national emergency becomes more widely recognized, the need to flood the bank & bond arenas, as well as the corporate credit & household arenas, will become broadly understood as desperate. Without that flood, the system will enter a deeper economic recession than already is in progress. Without that flood, the system will see the banking system actually fail. THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS. From subscribers and readers: Dec 13, 2007 email: jimwilliecb@aol.com Willie Archives website: Golden Jackass subscribe: Hat Trick Letter Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his website at www.GoldenJackass.com.
|