The Financial Dominoes are Falling
(Don't get hit!)
Silver Stock Report
by Jason Hommel, March 16, 2008
The Financial Dominoes are Falling.
Ironically, the major financial stocks are now more volatile and risky than mining exploration stocks!
Countrywide Financial Group (CFC) fell first, a few weeks ago. A year ago, CFC traded at $40, today, trading at $4.50, with Bank of America seemingly waiting in the wings to merge or bail them out. This wiped out $20 billion in Countrywide stock value so far, with $2.6 billion to go.
One of the Major holders of CFC stock is Legg Mason Capital Management,
owning 9.4% of CFC, losing about $2 billion.
Last week, Carlyle Capital Group fell, wiping out 90% of a $22 billion
One of the fund's lenders was Bear Sterns, followed by Bank of America, and Citigroup.
Then, on Friday, that collapse was followed by Bear Sterns (BSC).
Bear Sterns stock had fallen from nearly $100/share in 2008 down to $50/share last week, and then down to $30/share on Friday. JP Morgan today, announced they will buy Bear Sterns for $2.00/share, as long as their liability is limited!
At $100/share, Bear Sterns was worth $13 billion, today, worth $0.26 billion.
One of the major holders of BSC stock was again Legg Mason Capital
Management, owning 4.84% of BSC, losing about $570 million since
It seems as if Legg Mason was not an insider to what is going on, as they are getting creamed or blindsided in these cascading cross defaults and bankruptcies.
Two other stocks that have plunged in this housing mortgage mess are the notorious government sponsored Fannie Mae (FNM) and Freddie Mac (FRE). Each stock is down from about $60 to $20, losing 2/3 of their value, each losing between $20-40 billions of dollars for major institutional shareholders. Each stock is probably a bookkeeping nightmare of undisclosed mark-to-fantasy losses.
Who are the biggest three financial firms that dominate the banking and investment industry? JPMorgan (JPM), Citigroup (c), and Bank of America (BAC). Each of these three owns derivatives books that are larger than all other U.S. banks, combined, $80 trillion, $30 trillion, and $30 trillion, respectively. For comparison, the GNP is $13 trillion, money in U.S. banks is $13.5 trillion, and the national debt is $9 trillion. These three banks leverage their "assets" about 100 to 1 through interest rate derivatives contracts, and cannot afford to see catastrophic events happen, such as a major rise in interest rates, or a major rise in the gold price.
But interest rates must rise as high as the gold price is rising to prevent further gold price rises, which means that interest rates need to rise to about 30-50% which would devastate bond values, and so, they are in deep trouble of going under themselves.
This is why they are bailing out other banks; to prevent withdrawals in case people lose confidence in their entire fraudulent system.
All three have market caps of over $100 billion. Looking at the charts, all three appear to be in serious trouble as they have lost almost 50% of their market cap in the last 6 months. Collectively, that's about $300 billion in losses right there. Citigroup appears the worst off, losing more than 50% of their stock price.
The funds that own these banks are also in big trouble, losing huge amounts of capital.
It's quite incestral, and many of the same names, the following 7 names, all show up in the top 10 holders of each of the top 3 banks, Barclays Global Investors UK Holdings, Capital Research and Management, STATE STREET CORPORATION, THE VANGUARD GROUP, FMR, AXA, Bank of New York Mellon corporation. Each fund has lost about $7-15 billion on all three of the major bank stocks in the last 6 months, collectively, about $70 billion in losses right there.
It seems as if there is a game afoot called avoiding bankruptcy. It appears to me as if each fund is trying to raise capital by selling off their bank stocks at the same time to raise capital to offset other losses or to meet other financial obligations, and this is creating a positive feedback loop creating further losses.
I think there is a major panic right now among the world's largest institutions and funds.
It seems they don't know who to trust.
It appears as if it will get worse next week. It is just amazing to me to see JPMorgan buying up Bear Stearns (but not their liabilities) for $2/share this Sunday night, when on Friday, the stock was down 47% to $30/share.
Now, next week, it will be a game to see who is depending on Bear Sterns' ability to pay?
Let me give them the same advice that I'll give you.
You should not trust anyone right now!
This is why you need silver and gold. They cannot go bankrupt. They cannot go to zero value. Their value does not depend on another's promise to pay. Silver and gold are not promises, they are payment in full.
You should especially not trust anyone to hold your silver or gold for you; especially not any large institution.
Get your money out of banks, get out of all bank stocks, get out of funds that invest in banks. I hesitate to say this, only because it is illegal to cause a "bank run" on a specific bank; therefore, I say to get out of all banks, both your accounts, and your bank stocks.
Get physical silver and gold. Imediately. No delay. No excuses.
I don't want to hear you bellyaching to me about how you think it might be risky to hold assets in a safe at home, because you are only renting. Get a safe at a local discount store, gun shop, or locksmith shop, or safe company.
Bolt your safe to your wall studs, or mount it inside a closet, or concrete garage floor. Put some cardboard boxes or wooden panels around it to hide it. There is a very low risk of theft from a break-in to your home safe, the risk is extremely small, unless you live in a particularly risky part of town; and if that is the case, then move. Most home invaders will not have the skills to crack your safe.
The risk of a home safe getting cracked is probably less than 1 in 10,000,000.
The thief you need to watch out for right now is called bankruptcy, and default, and these are bigger thieves than government taxes or inflation, which only take 10-20% per year; a risk of 1 in 10, or 1 in 5! Bankruptcy and default take 100% of your assets held by the other party, all at once.
If you live in a nation where you don't have access to silver or gold, and if you have no clear options, then there are two companies that I can "sort of" suggest. These are the only two companies in the industry that I "might" trust with a very tiny portion of my gold and silver, but I have not opened accounts with either of them. I trust them more than any others because of the way they do business, because it's audited, and because of their philosophy:
If you can't open accounts with those companies, then there is one last option on how you can somewhat own some gold and silver. You can use a brokerage account to buy the ticker CEF, a trustworthy fund that holds 95% or more of it's assets in gold and silver. I do not trust any other ETF. But even if you do that, you are still at risk if your brokerage company goes bankrupt.
Let me be clear: I HOLD NO SILVER OR GOLD WITH ANY OF THOSE COMPANIES!
I do not trust kitco.com, nor the Perth Mint, nor Monex, nor any other private company that claims to hold your gold or silver for you.
Remember, if someone else holds your gold or silver for you, then you don't own gold or silver, you have merely traded one form of promise for another form of promise. You own promises, unless you own silver and gold. Only silver and gold in your hands can protect you from another's bankruptcy or default.
If you can't trust your own location, then trust your family members. Spread out your wealth among several safes with several family members if you have no other options--you don't have to give them the combination to the safes!
I'm worried, very worried, but much more for you than for me. I hold my IRA with a major brokerage house, and I use my IRA to invest in mining and exploration stocks. My IRA is with one of the top 5. It could have been Bear Stearns, but it was not. I've been assured that if my brokerage house goes bankrupt, that my IRA assets are safe, because they can't borrow or pledge against them. But who really knows--they automatically sweep my cash into a money market fund, and what is that except a bond fund, which depends on another's ability to pay?! I can't opt-out of the money market deal, so I just hold as little cash as possible. And if I lost my IRA, I'd have enough physical bullion in my hand to protect myself.
If your only nest egg is your IRA, then I suggest taking half of your money out, and paying the penalties, and buying physical silver or gold immediately from your local coin shop.
My local coin shop tells me things have really changed. It used to be that more people sold silver than bought. This was consistent with the market structure of 200 million oz. of silver recycling, and only 50 million oz. of investors buying. However, in January, it changed. His business volume was up by a factor of 10, as compared to last year. In February, up by a factor of 8, but people were still mostly selling. Now it's changed big time. Investors are now buying more than people are selling, partly because of gold's breakout above $1000/oz. This is the first time I've seen this happen to my local dealer.
This is not a time for dallying, or worrying. This is a time for
action. You must act fast to get your money out and into silver and
While I was writing this, Sunday evening, gold shot up $23/oz. to $1027, after a high of $1033/oz.