Saturday, February 2, 2008

Something Smells Fishy Here

New cable cut compounds net woes


BBC News - A submarine cable in the Middle East has been snapped, adding to global net problems caused by breaks in two lines under the Mediterranean on Wednesday.

The Falcon cable, owned by a firm which operates another damaged cable, led to a "critical" telecom breakdown, according to one local official.

The cause of the latest break has not been confirmed but a repair ship has been deployed, said owner Flag Telecom.

The earlier break disrupted service in Egypt, the Middle East and India.

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My Comment: Something is going on here. Two cable cuts in a week...deep under the ocean???

Music to my Ears

KT Tunstall - Saving my Face



KT Tunstall - Black Horse And The Cherry Tree (ABSOLUTELY AWSOME!!!)

Jim Cramer dissed by Rick Santelli

A boiled Egg is hard to beat

Reuters reports that the Web bank Egg withdraws cards from riskier customers. The Citigroup owned bank, following a risk review, will withdraw credit cards from 161,000 of their customers.

The Credit Card Time Bomb Is Ticking Away

Cash strapped consumers are increasingly turning to charge cards and home equity lines to support consumption. Some Debt Trends Are Good. This Isn’t One of Them.

American credit card debt is growing at the fastest rate in years, a fact that may signal coming trouble for the banks that issue them.

The Federal Reserve reported this week that the amount of revolving consumer credit that is outstanding hit $937.5 billion in November, seasonally adjusted, up 7.4 percent from a year earlier. The annual growth rate has now been over 7 percent for three months running, the first such stretch since 2001, when a recession was driving up borrowing by hard-pressed consumers.

More Salad, Less Twinkies


By Peter Schiff,
February 1, 2008

Despite the fact that the Fed still believes that a recession is unlikely to occur, Bernanke & Co. followed up on last week’s emergency 75 basis point rate cut with a 50 basis point kicker on Wednesday. Not to be outdone by the Fed’s generosity, the House of Representatives and the Bush Administration slapped together a $150 billion “stimulus package”, which can only be delayed by the Senate’s desire to join in the bead throwing. On Wall Street these actions were cheered as heroic, with praise and accolades for all (what could be more politically courageous than handing out free money in an election year.) In a recent poll, fully 78% of economists thought these policies were appropriate…while 18% thought that they were not aggressive enough.

A common definition of insanity is the act of repeating the same activity while expecting a different result. Bernanke is now repeating the same mistakes made by Greenspan, yet he and almost everyone on Wall Street expect a different result. The stock market bubble of the 1990s resulted from interest rates being too low, which sent false signals to businesses, causing them to over-invest in information technology, telecom, and dot coms. When that bubble burst, rather than allowing the corrective recession to run its course, the Fed responded by slashing interest rates. The result was an even larger bubble in real estate; causing consumers to borrow far too much money to buy houses and other goodies.

Now that the housing bubble has burst, the Fed is once again slashing interest rates to postpone the pain. However, in order to correct for years of extravagant borrowing and spending, the country is in desperate need of a period of saving and economizing. But by rewarding debtors and punishing savers, lower interest rates actually encourage the opposite behavior. Given how much harm this strategy has already done in the past why should we assume it will work any better now?

Consider a real world example. Suppose your spendthrift neighbor, maxed out on credit card and home equity debt, no savings in the bank, struggling to make ends meet and one paycheck away from foreclosure and personal bankruptcy, comes to you for financial advice regarding what to do with the $1,200 he received in the Federal Stimulus Lottery? Would your advice be to “go out and buy yourself a brand new plasma T.V.”? My guess is that you would suggest he pay down his debts. If you were a good friend you might help him devise a budget to put his financial house back in order. Such a plan might include trading in his Mercedes SUV for a more fuel efficient Honda, brown bag lunches instead of expensive restaurants, tearing up department store charge cards, cancelling vacations, cutting back premium cable channels, etc. When you are neck deep in debt, the solution is to economize, ratchet down your lifestyle and repair your personal balance sheet. In other words, you go though your own personal recession.

Would your advice be any different if it was not just one neighbor asking but 300 million? If it’s wrong for an overly-indebted individual to blow a windfall, it’s just as wrong if millions of us do it collectively. If our economy is already suffering from too much debt, think of how much worse off we will be after we blow through these rebate checks.

Or think about it this way -- Imagine an obese individual showing up at a Weight Watchers meeting and his counselor handing him a box of Twinkies? How much weight do you think would be lost on the “Twinkie diet?” American consumers have basically stuffed themselves almost to the point of explosion. What is needed is salad; not more Twinkies.

Ironically of course, by blowing up both the stock market bubble in the 1990s and the real estate bubble that followed, Greenspan actually repeated the same mistakes that previous Fed chairmen Benjamin Strong and William McChensey Martin made in the 1920s and the 1960s respectively. It seems sanity is a major disqualification for central bankers.

For a more in depth analysis of the tenuous position of the Americana economy and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.”


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Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkeley in 1987. A financial professional for over twenty years he joined Euro Pacific in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, Peter is a highly recommended broker by many leading financial newsletters and investment advisory services. He is also a contributing commentator for Newsweek International and served as an economic advisor to the 2008 Ron Paul presidential campaign.





What Will You Do With Your Gold?



This assumes you have bought some gold.

A lot of my readers have read my recommendation – "Buy some gold" – for six years. They still haven't bought any. They apparently think it's good enough to have read a few reports on the importance of buying gold. "Now I don't actually have to buy any." It's like an overweight person reading a diet book while munching on Fritos and bean dip.

There is an astounding amount of misinformation on gold available on the Web. This shows the tremendous impact of the Web. Back in 1995, this misinformation was far more limited in its scope.

Here is the main piece of information: "Gold! Gold! I'll be rich – rich, I tell you! Hahahahaha."

No, you won't. Here's why.