I'd never seen the film Casino until Sunday night. In one of several scenes of brutal comeuppance, the fictionalized versions of real-life psychopath/killer Tony "The Ant" Spilotro and his brother Michael are beaten with baseball bats and buried in a cornfield. Coroner reports later said they had dirt in their lungs, indicating they were buried while still alive, though they were beaten so badly they were only recognizable via dental records.
The scene went on for a few very long minutes, and it was hard to watch. But I ask you, is it any easier to read the Wall Street Journal or Financial Times these days?
Everywhere you turn, it feels like our manic prosperity has been bludgeoned in a cornfield and buried half alive. The mobsters in Casino were mostly from Chicago. The ones trying to bury us alive today are from Washington, DC...
The Commodity Futures Trading Commission is beating up commodity traders. The CFTC wants to limit position sizes on commodities contracts in an effort to crack down on "excessive speculation," though it hasn't said how much speculation is too much. Does some new study say too much speculation causes cancer? Or even worse for legions of self-obsessed Baby Boomers, does it make you fat!?
Last summer, when the price of oil was in orbit, the CFTC didn't have much to say. But now that Komrade Obama is in charge, CFTC Chairman Gary Gensler suddenly thinks "we must aggressively use all existing authorities to ensure market integrity." If Gensler gets his way, the commodity markets in the U.S. will have as much integrity as any other business with the mafia leaning on it every minute of the day.
The CFTC will hold hearings this summer to consider trading position limits for "all commodities of finite supply." As it is now, the CFTC sets limits on agricultural commodities, and the commodities exchanges set limits on everything else, though they're not required by law to do so. Exemptions from limits are generally given for hedging operations.
Central control of trading markets has the ominous feeling of a precursor to foreign exchange controls... currency controls. When that happens, it'll be like someone suddenly sealed up every leak through which currency might escape the country (a normal process). The pressure will force the price of many goods and services straight up.
Meantime, the CFTC's proposed limits could really hurt oil, natural gas, and other commodities. Be careful out there. Political risk is growing...
(Kudos to our friends at Casey Research for scooping the CFTC crackdown story.)
Speaking of crackdowns on commodities, the mob in India, the world's largest bullion consumer, is cracking down on gold. The government doubled import taxes on gold and silver as it looks to fight poverty and raise funds to build roads, bridges, and other infrastructure projects. Gold bars will carry a tax of 200 rupees ($4.10) per 10 grams. Silver will be taxed at 1,000 rupees per kilogram. Gold imported as jewelry or any other form will be taxed at 500 rupees per 10 grams.
India's bullion imports are already down 55% from last year, and the additional tax burden will cause the remaining to "evaporate," according to the Bombay Bullion Association – a Mumbai-based group of traders and jewelers. India bought 51.8 metric tons of gold from January to May, compared with 115 tons last year.
Crackdowns just push markets underground. Gold is too important to the Indian culture. They'll develop a black market and quick.
The World Gold Council agrees... Director Dharmesh Sodah said the taxes will undoubtedly "hamper" demand, possibly leading to black-market trade... "There is evidence from other key gold markets around the world that higher taxation regimes can lead to the trading of gold along nonofficial channels."
And what's more romantic than gold smuggling? It sounds like something out of an old movie or a dime novel.
Despite the negative news, gold was flat at $924 an ounce.
Mortgages weren't the only assets packaged into toxic waste by Wall Street criminals. Trust preferred securities got the same treatment. Banks issue trust preferreds to raise capital that gets favorable tax, accounting, and regulatory treatment. A bank creates a trust, which sells preferred stock to investors and lends the proceeds to the bank. For tax purposes, the trust preferred is treated like debt, so the dividend is deductible (unlike other preferred stock) like a debt interest payment. Regular preferred stock dividends are paid out of after tax profits. For regulatory purposes, trust preferreds count as capital, not debt.
Wall Street sold slices, called "tranches," of trust preferred collateralized debt obligations (CDOs) as high-yield and low-risk investments.
The Campbell family of Illinois owns six banks that started buying trust preferreds like crazy in 2005, when they were having trouble finding new creditworthy borrowers. All six of those banks have failed and were seized by the FDIC on Thursday. Three of the failed banks were founded in the mid-19th century just before and after the Civil War. They survived two world wars, the Great Depression, several panics, manias, and crashes, the Great Inflation of the 1970s... but they were no match for the Great Debt Bubble of the early 21st century.
Lyle Campbell, who sits atop the crumbling Campbell banking empire, seems at long last to have fallen for one of the oldest and most insidious tricks in the book: diversification. Campbell told the Wall Street Journal the trust preferred CDO tranches he bought "were so widely dispersed that we thought they'd be safe." The six failed banks had about $1.4 billion of assets, and roughly $439 million of available-for-sale securities, which is how the trust preferreds would be classified.
In more ways than one, it feels today like it must have felt in the 1930s, when a manic prosperity was bludgeoned to death and carried away, like Tony and Michael Spilotro.
Trust preferreds have their downside, credit crisis and Wall Street hucksterism aside. Trust preferred dividends can be deferred for as long as five years, and they're junior to all other debt.
In the mailbag... Think anyone owes you a thing? Let us know who: feedback@stansberryresearch.com.
"Thanks for the link to the article about Goldman Sachs. I don't know if every thing in the article is true, but if only half were true they should all pay for their crimes. It's
truly amazing in this land of opportunity that a company isn't satisfied with making money legally but must rape all the investors it can. How does one fight a beast like Goldman? Can Goldman be defeated or will the U.S. have to die first before this blood sucking host finds a new body to suck dry." – Paid-up subscriber Kurt J
Ferris comment: They can't suck you dry if you don't serve them your blood with a smile and a thank you. The way you fight a beast like Goldman is by not being a gullible idiot.
If everyone who presently holds publicly traded common stocks sold anything he didn't truly understand, Goldman's share price would go to zero. Same goes for Bank of America, Wells Fargo, Citigroup, JPMorganChase, and probably several dozen others. They're too complicated. Nobody knows them well enough to buy them.
If you want to beat Goldman Sachs, remember what libertarian writer Harry Browne told his daughter: Nobody owes you a thing. Goldman Sachs doesn't owe you a thing. They're in business to take as much profit out of securities markets as they can, however they can. You want to beat them? Learn to do the same.
You want the Goldmans of the world to go away? Just think for yourself. That is your only recourse. The law can't do it. The regulators can't do it. Nobody at Stansberry can do it for you, though we publish quite a few ideas each month that can help you out in that department. Ultimately, it is your burden to bear. And you bear it alone, just like the rest of us adults.
The problem with Amerika and the reason we fall for slimy actors like Goldman Sachs is that we don't do self-reliance anymore. Instead of self-reliance, we do heroes, and Barack Obama is the hero of the moment. Everybody thinks he's going to save us from ourselves. The Obama-worshippers aren't wrong because Obama's plans are bad (and they are truly awful). They're wrong because nobody can save you but you. I think it was Elbert Hubbard who wrote, "Grown men don't need leaders." Amen.
I don't excuse Goldman or any other den of Wall Street thieves for their truly despicable, larcenous behavior. But neither am I naïve enough to pretend that isn't how such people have always behaved and always will behave. You and I and that thundering herd of so-called investors out there... we're all totally out of excuses. It's up to us, not "them."
If you want to know how I plan to beat Goldman Sachs and its ill-intentioned ilk to a fine, bloody pulp, read the next issue of Extreme Value, which comes out this Friday afternoon after market close. I've found yet another doomed financial institution that owns too much garbage.
If you have large sums of money in publicly traded stocks and bonds and don't start reading Extreme Value over the next couple of months, I'm fairly certain you'll regret it by the end of the year. Click here to learn more.
Regards
Dan Ferris
July 7, 2009
Medford, Oregon