Investment Flash: Bull Market in Cash
It looks as if the Summer of 1929, has finally past. We are now experiencing "forced selling and unwinding of leverage on assets" that we stated would follow.
Fed Injections
On Monday, it was reported that the Fed has been injecting short term
cash onto the balance
sheet of Deutsche Bank. Two days later, Citigroup, J.P. Morgan Chase, Bank
of America, and Wachovia all said they
had borrowed $500 million each. According to Foundations of Financial
Markets and Institutions by Fabozzi, Modigliani and Ferri; "Banks temporarily
short of funds can borrow from the Fed at its discount window...Continual borrowing
for long periods and in large amounts is thereby viewed as a sign of a bank's
weakness" because the Fed is "the bank of last resort." Banks are borrowing
from the Fed because they can't get the money anywhere else, not as they claim: "it
is important at this time to take a leadership role in demonstrating the potential
value of the Fed's primary credit facility and to encourage its use by other
financial institutions." As we warned last November as the credit boom comes
to an end: "'severe
macroeconomic repercussions' are highly likely and that 'banking system capital'
will be impaired." To think the Fed will save the day is to ignore the lessons
of 1929: "the Federal Reserve can print money, but it cannot create credit
or confidence. 'Money' is therefore hoarded, by either the public or the banks
themselves (if they are concerned about an increase in redemptions)."
"The Whole Town's Gone Crazy"
To see the fearful psychology that mortgage lenders, hedge funds, and now money
market funds and banks have been dealing with start at the 51 minute marker
of this movie.
George Bailey goes from "Float away to happy land on the bubbles" to "look
we're still in business; we still got two bucks left." The run for cash has
just started; we have a long way to go before most assets are undervalued
in historical terms.
At Lamont Trading Advisors, we are liquidating historically overvalued assets and purchasing liquid U.S. Treasury Bills for our client's IRAs and brokerage accounts. For more about our wealth preservation services, visit our website. Our monthly Investment Analysis Report requires a subscription fee of $40 a month. Current subscribers are allowed to freely distribute this report with proper attribution.
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