No. I don’t think so.
To be sure, his speech was short on details. But in my opinion, Geithner’s got it right. Especially the expansion of the TALF program. For those of you not up on it, Geithner is essentially proposing to bring the securitization process back into the fold, allowing private hedge funds and other financial intermediaries to invest in troubled assets … get 100% of the upside … while potential losses will be guaranteed by the government.
In other words, the Treasury will effectively create a call option for investors to buy on the underlying toxic assets — with unlimited upside, and strictly limited risk on the downside.
This IS going to kick start the credit markets where it counts – by bringing private investors back in.
The decline in the markets, their disappointment, is merely disappointment at the lack of details and a knee-jerk reaction. I have been expecting one more final sell-off, and this should be it. I would look for a bottom to occur soon. We’re on the verge of a multi-month rally.
Also, keep your eye on gold. If it closes above that $929 level I’ve been warning you about, new record highs are forthcoming.
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{ 14 comments… read them below or add one }
Many analysts say the toxic assets are basically worthless. If that is the case, isn’t the illusion of private investment just a cover for government (taxpayers) taking the hit for trillions of dollars in losses?
Larry Edelson Reply:
February 13th, 2009 at 2:35 pm
Not if you’re one of the taxpayers who knows what it means — eventual massive dollar devaluation and inflation, possibly hyperinflation. Then you profit.
You’ve gotten your close above 929.
Larry Edelson Reply:
February 13th, 2009 at 2:36 pm
Yep. Look for a continued rally — another correction — and then a major thrust higher.
Normally, gold is inverse to the dollar, so with the rallying dollar, gold also rise, the reason been safe haven purpose. I am wondering if stock rally, people may dump gold and put their money in stock…with stock rallying, the function of gold as safe haven is no longer apply….am i right? Pls enlighten me, Larry….thanks
Can gold and stock rally side by side?
Larry Edelson Reply:
February 13th, 2009 at 2:37 pm
Yes, they absolutely can, and I expect them to over the longer haul. Stocks can also become seen as a safe haven. Heck, I would rather own $100,000 of ExxonMobil than $100,000 government bond now, any day of the week.
Dear Larry
I have read your comments with great interest. Congratulations for having a clear mind.
Can I ask you a question?
Let’s assume I have got cash. But no house, no stocks. Just cash.
Shall I rather buy a big house, and take-out a big mortgage (with a fixed interest rate and a long-term duration, to avoid any spike in interest rates later on), or invest in gold and stocks?
All this based on the view that currencies will all CRASH.
In such a situation, is it good or bad to have debt? I mean if currencies crash, and there is reflation in gold and stock markets, would this be true of real estate as well? And therefore, to have a big mortgage would be rather unproblematic? Am I right?
My feeling is that if currencies are fully crashing, it is better to buy big property with big debt (fixed interest rate mortgage) now, and in 12 months, once the crash happens in currencies, the big property remains, and the big debt becomes tiny. Plus the price of the property goes up tremendously.
Is this a correct way of thinking? Or only gold will shoot up?
Thanks in advance for your patience and time.
Kind regards
Larry Edelson Reply:
February 17th, 2009 at 4:26 pm
Technically, you are exactly correct. Given long-term debasement of paper currencies, tangible assets, including property, are the best bets. So is borrowing now. However, there are many other variables, such as your income and ability to make payments on the debt, the location of the property, etc. So, in the real world for us average investors, going into debt now is not as practical as it may seem. The bottom line: If you can afford property now, definitely start shopping. But when borrowing money, always keep the worst case in mind by supposing something happens and you can’t afford the debt service payments, inflation takes longer to take hold, etc. Factor those worst case scenarios in, then make your decision.
If stock rally, gold will be dump. Can gold and stock rally side by side?
Larry Edelson Reply:
February 17th, 2009 at 4:27 pm
Absolutely they can. Just consider the 2003 to 2008 period, when they both went up together.
So this supposed plan is pretty vague so far. What do you think will happen to mortgage rates in the next weeks to months? With all this talk about modifying “troubled” loans, will the rest of us get any breaks? I’ve heard a few mention principal balance reductions for ALL mortgages and lowering of all interest rates to around 4%. Do you think this will happen? Seems like a good idea since it’s OUR money bailing out the banks, shouldn’t we get something in return — like a lower mortgage balance and a lower interest rate?
If they don’t do this, what happens when those of use who kept up with payments and did not get into mortgage trouble realize everyone else is paying lots less for the same house than we are. Don’t you think it will cause a mass exodus out of homes, leaving them to the banks as more foreclosures?
We’re trying to find some direction with this mortgage/home value mess. More information sure helps for better decision making? Can you shed any light on it?
Thanks so much. We value your opinions!
Larry Edelson Reply:
February 17th, 2009 at 4:30 pm
All good questions, and I wish I knew the answers. It certainly does seem unfair!
Hi Larry,
Larry since your the expert in m&m on precious metals and natural resources, can you please explain why the ETF USO which is designed to track the movement of crude futures, on friday 02.13.09 it was down about 2% while the underlying price of crude was up 10%, i’m confused to this correlation in price, can you please help me understand it.
sol
Larry Edelson Reply:
February 17th, 2009 at 4:32 pm
The USO does not track the delivery month in the crude oil futures market as closely as it does the further out months. That’s one chief reason. Short-term swings in the spot price. Overall, however, the co-relation between USO and the price of crude is very tight.