Archive for October, 2008

De-leveraging Realities

Wednesday, October 8th, 2008

Financial leverage: The degree to which an investor or business is utilizing borrowed money.

The last 25 years have been all about leveraging and leveraging is all about probabilities with one exception.  That exception happens with Our Heavenly Father tells you to borrow.  Borrowing is not a sin.  There are specific Scriptures relating to usury.  The borrower is subject to the lender and agrees to submit to specific terms and conditions. 

When times are good we all become optimistic about the future and its opportunities.  Along with opportunities comes expected increases in income and cash flow.  There is no end in sight.  The assumption is that asset values will always rise and if you buy a house, it will increase in value.  For many that assumption held true during their adult life.  Those that lived through the Great Depression had a reality check.  The Roaring 20’s had seen dramatic increases in asset valuations.  Life was good.  After the Stock Market Crash of ’29, the market did have days of recovery.  See the following graph:

Image:1929 wall street crash graph.svg


This precipitous drop did not wipe out all stock share values.  It wiped out capital of people who had leveraged up their investments.

Excerpt of the Crash of ’29 (from

…After an amazing five-year run when the world saw the Dow Jones Industrial Average (DJIA) increase in value fivefold, prices peaked at 381.17 on September 3, 1929.  The market then fell sharply for a month, losing 17% of its value on the initial leg down. Prices then recovered more than half of the losses over the next week, only to turn back down immediately afterwards. The decline then accelerated into the so-called "Black Thursday", October 24, 1929. A record number of 12.9 million shares were traded on that day.

The crash followed a speculative boom that had taken hold in the late 1920s, which had led hundreds of thousands of Americans to invest heavily in the stock market, a significant number even borrowing money to buy more stock. By August 1929, brokers were routinely lending small investors more than 2/3 of the face value of the stocks they were buying. Over $8.5 billion was out on loan,[26] more than the entire amount of currency circulating in the U.S.  The rising share prices encouraged more people to invest; people hoped the share prices would rise further. Speculation thus fueled further rises and created an economic bubble…

Does any of this story sound familiar?  Hedge funds leveraged their capital 30 to 1 and higher speculating that prices would climb even further.  They used complex algorithms (formulas) to determine which stock or stocks to buy, how much, and at what price.  Their formulas were correct 90-95% of the time.  We are now dealing with the 5%.

What is the impact of "de-leveraging" on good stocks?  The stock prices will be pushed down during this de-leveraging process.  Why?  In order to raise cash to cover the borrowing against bad positions, the investor must sell anything and everything, even the good, sound stocks.  Thus the selling pressure outweighs the buying pressure and the price declines.

The people that made money during the Great Depression were those who had cash and could wait for the market to bottom out and then pick up quality investments for pennies on the dollars.  Those who went into the Great Depression highly leveraged lost it all.  In despair, some jumped out of windows to their death.

Run on the Banks?

Monday, October 6th, 2008

In Proverbs 22:7 we are told: "The rich ruleth over the poor, and the borrower [is] servant to the lender."  In the early 1980’s the credit bubble began.  Mortgage securitization also began in earnest.  The following is the big picture:

1971  The elimination of the gold standard allowing for an unchecked increase in money supply (inflation)

1979-83  Inflation, which peaked at 13.5% in 1981, was successfully lowered to 3.2% by 1983 under Paul Volcker’s oversight at the Federal Reserve.

1983-2008  The massive credit bubble was created by providing artificially low interest rates and relaxation of lending standards (promoted by the Government.

1994  Long Term Capital Management, a hedge fund, was founded and failed.  In 1998 it lost $4.6 Billion in four month, the first example of derivatives failure.  Mathematicians used formulas to determine derivative risk probability… unsuccessfully.

In 2000, Credit Default Swaps became a tool for financial speculation when the Commodity Futures Modernization Act of 2000 specifically barred regulation of these trades.

2000-2008 Credit Default Swaps (de facto insurance of sub prime mortgage securities) were effectively endorsed by the ratings agencies who issued "AAA" ratings to toxic debt because it has Credit Default Swaps (CDS) insuring its value.  Issuers never used the term "insurance" since it would then be subject to regulation and capital requirements.  Thus if the issuer went out of business the worthless security would be re-valued at its underlying value- toxic debt.

When you borrow from the bank, you are a "servant to the lender".  However, when the bank receives deposits from a customer, they are "servants’ to the lenders (depositors).  When I deposit $1,000 into a bank, my $1,000 is carried as a liability on their books.  In turn they will typically loan about $900 of that money to a borrower.  Currently, they will charge about 7-9% and pay me 1-3%.  Effectively they make 4 to 8% interest on the loan.  The borrower will not use up all the loan so part of the money will go into his checking account.  That money goes through the same process as above and it is called "the multiplier effect".  When things are going smoothly the banks make a lot of money on "our deposits".  What would happen if I pulled out my $1,000 and bought gold or silver with it?  It is removed from the banking system and the system contracts in the reverse of the multiplier effect.  This is why the central banks around the world are suppressing the price of gold and silver.  They do not want the average depositor converting their bank deposits to gold and silver thus removing it from the credit system.  Once out of the system, it is out of their control.

You now know why the U.S. Congress included the FDIC increase from $100,000 to $250,000 in deposit insurance.  They have been told privately that there may be a "run" on the banks.

In volatile times how do you protect the wealth you have spent your entire life to attain?  There is only one store of value that has no liability attached to it- gold (or silver).  The U.S. Dollar is a Federal Reserve Note.  A Note has a liability attached to it.  Prior to Federal Reserve Notes, the U.S. Treasury issued Silver Certificates (backed by silver).  Those are gone, taken out of circulation intentionally.

Executive Order 11110 was issued by President John F. Kennedy on June 4, 1963.  The Order was for the Treasury to issue silver certificates against all silver held by the government which did not already have certificates against it. The Order was needed due to the passage of Public Law 88-36 which repealed the Silver Purchase Act and other related monetary measures. One result was that after the repeals, only the President could issue new silver certificates.  The Federal Reserve System could replace the certificates, but only in larger denominations. The thrust of the Order returned the authority to issue new silver certificates (and specify denominations) back to the U.S. Treasury.  He plan to issue $4.3 Billion which would have replaced the demand for Federal Reserve Notes and take back control of the nation’s currency.

Kennedy was assassinated on November 22, 1963.  After Mr. Kennedy was assassinated just five months later, no more silver certificates were issued.

I recommend each family keep at least one to two month’s expenses in cash.  If the large depositors (over $250,000) decide to move their money away from the U.S. banking system, a bank holiday (temporary closing of all banks) could be proclaimed until the leaders could figure out what to do about the crisis.  Will it happen?  Only Our Heavenly Father knows.  If it does happen we must be prepared.  Until these volatile times have passed, cash in hand is "king.  You can always redeposit the cash after the crisis window has passed.

Truth… Where is it?

Thursday, October 2nd, 2008

…and you will know the truth, and the truth will set you free…

What is truth?  It is that candor of mind which is free from affection, pretence, simulation, falsehood, and/or deceit in any matter under consideration.

The moment Paulson asked for a blank check free from any judicial review was a clear indication that the truth was hidden from view.  The complexities of this world have created a hotbed of lies.  Lies and deceit have been at the center of our financial system for years.  In 1970’s when President Nixon took us off the gold standard, he set the stage for this crisis.  Gold has no liability attached to it.  It’s value cannot be manipulated.  The Scripture talks about unequal weights and measures when conducting business.  This problem of deceit has been occurring for thousands of years.  Many of us work our entire lives to provide for our families only to have our future shattered by the lies and deceit of the financial elite and politicians.  The current system will fall just like every major kingdom has in the past.  We have all studied the endgame of these kingdoms or empires.  We know the ultimate result.  The Bible tells us of Mystery Babylon, the most subtle of all kingdoms.  It may appear somewhat invisible to many but its ugly head in now coming to light.

We are told in Revelation 17:5 that Mystery Babylon is the "mother of harlots":


What is a harlot?  A prostitute, a harlot, one who yields herself to defilement for the sake of gain.  Recently Paul Volcker called this financial debacle "the mother of all crises".  When a person defiles himself, he becomes "unclean" or "polluted".

Our goal is to expose and present the truth in areas of our callings.  We have no interest in swaying political leanings.  Each of us have GOD given gifts and callings.  Those callings become apparent as we grow and mature.  We are attracted to those callings as they attract us as well.  Each calling makes up a part or portion of the Body of Christ.  As we function in our individual calling, we feed the Body.  It is our hope that as we expose the truth our readers will respond accordingly and not be swept up in the lies.

This financial crisis is exposing the truth.  The genie is out of the bottle.  Congress changed the wording from a bailout plan to a "rescue" plan hoping to make it more palatable to the American people.  Let’s just put lipstick on that pig!  Our readers have been warned of this financial tsunami for some time.  Is it too late do protect your individual family?  No.  One of the aspects of this crisis is the lie being promoted about the value of gold and silver.  The prices of these metals have been manipulated and held down.  I believe the true current value of gold should be in the $2,500 – $3,500 range if compared to the U.S. balance sheet.  Silver should be at the $50+ level.  The physical metal is in short supply but the "paper" market would have you believe there is plenty of supply.  It is all about deceit.  It is all about covering up the truth in hopes of continuing the transfer of wealth away from those who earned it honestly.

Are we about to see a hailstorm and flood?

Isa 28:17  Also I will make justice the measuring line, And righteousness the plummet; The hail will sweep away the refuge of lies, And the waters will overflow the hiding place.


Wednesday, October 1st, 2008

Is the financial flood ready to come?  Lamech (in the Scripture) lived 777 years.  He was Noah’s dad.  Plastered all over the New England newspapers was the number- 777.  With over one quadrillion dollars in outstanding derivatves (1,000,000,000,000,000), the global financial system is a house of cards and  people are scared.  The problem wasn’t "newsworthy" years ago as it was building.  Those of you who attended the Tabernacles meeting in Phoenix a few years ago heard me speak of the upcoming financial tsunami.  This week, four European banks were saved and there are more to come.  European banks tend to be secretive about their affairs until the last minute. See:

Nine years ago yesterday, the NY Times published an article that documented the origins of the sub-prime mortgage crisis.  Bill Clinton’s Administration put pressure on the banking industry to expand mortgage loans among low and moderate income people, specifically mentioned is Fannie Mae.  Fannie Mae had already lowered down payment requirements in order to expand its revenue and profits. See:

Franklin D. Raines, the former CEO of Fannie Mae served as White House budget director under President Bill Clinton prior to his job at Fannie Mae.  What a tangled web they weave.

The financial bailout will not bail out anything, it’s only a band aid.  The scare tactics presented by Paulson focused on our "retirement accounts".  Remember when a change in laws promoted the IRA/401K programs which allowed companies to move away from a defined benefit retirement plan?  The U.S. politicians have systematically placed the American people and global community in harm’s way.  The Federal Reserve lowered interest rates to artificial lows.  This act helped the borrowers and hurt the savers.  The generation who lived through the Great Depression are mainly found among the group of savers.  They knew what it was like to have no money.  They had to hoard anything that might be of use in the future.  Many of those who lived in the Great Depression are dying off now.  They were like a compass to remind us of how hard times could be.  Could we be entering into a Greater Great Depression?  By injecting huge amounts of new money into the financial system our retirement accounts will suffer anyway.  Why devalue our retirement account any more than it already is?

The same people who got us into this mess want to use our money to bail us (them) out!  Every senior executive in the financial industry who received bonuses in the last nine years should write a check and return every dime.  Not gonna happen!  Maybe it’s time to get into the Ark!