The Sons of Liberty

Why don’t we just let the free market work?  Why do we need to give freddie/fannie an unlimited line of credit to the treasury?  Why are we subsidizing local governments to buy up properties to try and maintain over inflated home values?  How are we to pay for this 300 billion dollar bill?  I’ll tell you how.  We will be taxed via inflation when the government issues more junk treasuries for the federal reserve to “buy” up with their fake money that they create out of thin air by creating a credit on their books.  Yep, that’s how our monetary system works. 

From what I understand of this bill, lenders will be able to dump their worst mortgages most likely to default on the books of freddie and fannie at a mere 10% discount of the current appraisal of the home.  When fannie/freddie pay 90% of the appraised value of the home to bail out the lenders and housing prices continue to decline anyway (interest rates will rise, further depressing home values) the tax payer will once again get raped as the quasi government agencies have no choice but to realize the losses.  Essentially, we the tax payer get all of this toxic paper and foot the bill instead of the people who made these loans to begin with.  We’ll be taxed through inflation as the federal reserve will have to create more money as debt to bail out fannie/freddie.  When is this going to end?  I don’t know.  I suppose the easiest way to pay back debts to foreign holders of US treasuries is to print money.  Eventually, foreigners holding on to dollars are going to dump them.  They find there way back here, as they will be the only place where they can be redeemed with actual goods (we’ll be so poor from rising costs of goods, we’ll be forced to sell our assets to foreigners).  It’s already happening now.

How money/banking works (five part video)

http://youtube.com/watch?v=vVkFb26u9g8

http://youtube.com/watch?v=vVkFb26u9g8

http://youtube.com/watch?v=kTv1fo6sKmo

http://youtube.com/watch?v=3qicabStQkc

http://youtube.com/watch?v=7kpSbkaD4tM

Required reading

http://www.amazon.com/Creature-Jekyll-Island-Federal-Reserve/dp/0912986212

Illuminati symbolism

http://www.youtube.com/watch?v=nRlDlAkonJU&feature=related

The housing bail out passed this Saturday as the senate had a rare weekend session.  Unfortunately, this is not a problem that throwing more money at can solve.  There’s just one thing I’d like to ask Mr. Paulson.  How does giving the federal reserve an empty line of credit to the US treasury supposed to put confidence back into our financial markets?  If anything, such drastic measures being taken monied interests that run this country would instill less confidence. 

The moral hazzard created by this legislation is unprecedented.  What’s going to happen is that the loans that are most likely to default are going to be written down and sold at 90% appraised value to freddie/fannie (read:  the tax payer).  This benefits the lender big time as they no longer have to continue writing down over valued assets and the government puts in a bottom for them regardless of what the property is actually worth.  Yes, the government will set the back stop for the lenders, but home values will continue to decline, and the quasi government agencies that bought all of this toxic paper from the very people who made these loans to begin with will have no choice but to realize the losses.  Of course, this will be paid by tax payer through inflation as the federal reserve has to create new debt to pay the existing debt.  Dollars are toxic people.  Trade them for hard assets now unless you can find stocks that can beat the real rate of inflation (there are a few good ones out there).

As for how I see this week playing out, it all depends on what happens Monday. If we have a good day and the S&P can get back to the critical 1260 area, we could be all set for a continuation of the rally. With GM reporting earnings before the bell Tuesday and the S&P/Schiller Home Price Index coming out, this bottom that we are retesting may not hold and could send us back down big time, with financials leading the way. I just don’t know man, but I’m betting on some major disappointments from GM weighing on the market, much like Ford did last Thursday. Add in some bearish housing numbers, and this rally could be dead in the water.  Then again, this socialist lender bail out might spark the market to rally and buy financials that can foot their bad paper to freddie/fannie.

How I long to have a place of my own, away from the fakeness of the city and the yuppyness of the suburbs.  A place where things move slower, days are more enjoyable, and life and people are more genuine.  A place where people live and let live.  A place where you are truly free.  Growing up in the Texas hill country, I’ve seen and experienced more beautiful things than I ever deserved to.  From camping on the Guadalupe, to fishing the Llano, to swiming Lake Travis, to drinking a cold one at Lukenbach, to being on an absolute jewel of a hunting lease (an understatement at that.  more to come on that later.), I’ve been so blessed.  And yet my heart longs for a place of my own, away from the suburban expansion that threatens the very hill country I speak so fondly of.  

I know I’ve got alot of years ahead of me to make it happen.  I guess patience is something I’ve always lacked.  I mean, here I am taking 9 hours of classes this summer and working full time when people my age should be out enjoying themselves.  Not that I’m complaining, as this is a choice I’ve made for myself so I can move foward with my life that much quicker.  Still I wonder whether it’s worth it or not.

But let’s head back to what I’m dreaming of.  I’d love to be able to shut off all the lights in the house and not see another light other than the stars above.  I’d love to be able to drive up to the highest point of my property, flip the tail gate down, stretch out with a sleeping bag, and have my rifle, a cold six pack, my pet coyote (how cool would it be to have a pet coyote?) by my side.  I’d love to be able to look off my front porch to an endless field of bluebonnets in the spring.  I’d love to have a spring fed creek to relax next to in those dog days of summer.  I’d love to have a hot tub to relax in during those cold winter nights. 

What I really want is the freedom that land ownership offers.  Money comes and money goes, but land is real and you can survive through thick and thin with it.  Being able to support yourself and your family no matter what happens to the rest of the world is what real life is all about.  Alot of people are living in a matrix world where the illusion of freedom exists.  Just how free are you though, if you rely on someone else for all of your needs?  The chains of bondage are in place and slowly tightening.  Reality will be a harsh wake up call to the people who refuse to acknowledge that the chains even exist (more to come on this subject on a later date).   

You ready to ride the rollercoaster back up?  The market is.  I’d like to call this the post freddie/fannie socialist bail out bounce.  If Citi reports lower than expected write downs and better earnings than the street has forcasted, we are well on our way to the 11,800-12,000 over the next couple of months.  Oil will correct to the $120 range (pending any middle eastern conflicts) and we’ll see a rally in the dollar as well.  Don’t kid yourselves though folks, we are still in a bear market and this bounce is nothing but a bear trap.  With this step back up, we’ll be taking two bigger steps backward.  Expect the Dow to be around 10,000 by the end of this year with major stagflation setting in (stagflation the market and federal reserve will no longer be able to ignore). 

So how do you play this hand if you are a trader or investor.  Since I’m a little bit of both, I’ll tell you and let you make up your mind.  From a trading stand point, I’d say it’s time to short oil.  The bull rush wasn’t quite able to break the $150 mark which would have set off a bigger bull frenzy.  Now that we are at $135, (unless the bulls get some major help in the next couple of day), oil will sell off as people take their profits and the shorts will move in, creating downward pressure.  I see short term upside potential as financials got way over sold during the freddie/fannie hysteria.  The ETF XLF will give you broad exposure to the financials.  I expect possibly a 25% upside.  I’d take profits after that kind of gain, but it’s really up to you on whether or not to hang onto it much longer. 

As an investor, I’d be waiting for some more correction in the oil/gold/commodities before adding more to my long positions.  I will be buying gold if/when it slips below $900 an ounce.  I sincerely believe it will be off to the races to $1200-$1400 an ounce by the end of this year, and will continue to perform well over the next 5-8 years.  With the weakness in oil, expect some major corrections in the prices of oil/natural gas stocks.  Don’t worry though, they will bounce back.  It may take longer as we are coming out of summer and into the fall (less demand for oil), but they will continue to perform strong over the next few years. 

I’ll let yall know what I’m doing once we get to the height of this bounce and idiots think that 11,000 was the bottom and the credit/dollar/oil crisis is behind us.  Believe it or not, there are alot of people out there who will see the Dow coming back and believe we actually hit a bottom here.  Remember, as a trader, be a contrarian.  As an investor, stick with the macroeconomic fundamentals. 

Don’t get me wrong folks, we are in a secular bull market in commodities.  That being said, crude is bound to correct sooner or later and I see it dropping in the $120 range barring an attack on Iran or a major hurricane in the gulf.  I think the market has gotten ahead of itself here.  Often some of the biggest corrections happen in bull markets, so don’t let the drop in commodities get to you.  The dollar isn’t magically going to strengthen anytime soon and continue to buy into weakness here folks.

Hedge your long position in energy stocks by picking up an oil refiner.  The margins for these companies have been getting squashed with the dramatic rise in crude compared to gasoline.  Valero (VLO) and Tesoro (TSO) are a couple of my picks.  They’ve both been hammered and will rebound nicely over the next few months if we see a correction in the price of crude.

If Gold drops back below $900 an ounce, you better get in.  Historically, an ounce of gold trades right around 10 times the price of crude.  With crude droping to $120 and bears dominating the stock market, expect to see some money moving to the safety of gold.  It is my belief that we’ll see $1200 gold by the end of this year.  Maybe even higher depending on how much bad debt is still floating around the balance sheets of banks.  The fed is in no position to raise (although that’s what they should be doing).  Expect more downside to the dollar as the Fed desperately tries to save bankrupt banks.  All of this makes me bullish on gold.

Which brings me to my next point.  Stay short the financials people.  Freddy Mac and Fannie Mae are the weakest, but they are bad across the board.  They have a ton of deleveraging to go and a ton of bad debt to write off.  Helicopter Ben has cut rates to 2% and they still can’t get out of trouble.  The Fed is practically giving away money and they find themselves in more and more trouble.  And don’t buy a home as real estate prices still have a long way to come down (unless you are in Texas, a tax/business friendly state that is attracting people like flies on road kill).  It almost sucks that we are such a booming state.  The influx of Californians will someday destroy this once great republic.