The Brothers Austrian

Word finally came down that the insurers will be bailed out; clearly, the insurers have become that buzz phrase known as ’systematically important’.

Did are the insurers take excessive risk or were they incestuous with the banking/brokerage partners? If you ever get bored, go to the EDGAR website and look at see who actually owns all the financials ‘preferred stock’ … (will save you time — the insurers own a ton). Who owns the insurer stock and banking common stock? Let’s go one step further, who were the biggest buyers of the RMBS and CMBS that the Citi’s and Lehman’s were packaging up?  You guessed it, the insurers or should I say the so called “smart money”.

Last year Allianz infused over billion into HIG … oh how nice of them! I wonder how much HIG stock Allianz holds? 4.5 million shares as of 12/31. I wonder how much in HIG bonds PIMCO holds?

Who is managing the boat loads of toxic debt that you, the tax payer, now owns? You guessed it, the PIMCO’s of the world.

I wonder how many people at PIMCO share an alma mater with late, great GWB or our dear friend of capitalism, President Barack Obama?

Seems to be some sort of fraternity that us common folk have trouble getting into.

Systematic? Yah, I guess there is something very systematic about what’s going on.

Is it the difference between Pepsi and Coke or perhaps is it better to say Pepsi and Coke are both COLA.

Wendall Wilkie Stock Market bailed out, financials, insurers, obama, pimco, preferred stock, toxic debt

There are many, many, micro inputs that collectively have combined to culminate into this massive credit crisis. The creation of the Federal Reserve, coming off the gold standard, the invention of the credit card, the invention of asset backed bonds, subprime lending, etc etc etc. Who could have ever thought that all of these things would culminate into a crisis this big? Well Hazlitt knew the problem was on the horizon in the 1950’s and make no mistake, Hazlitt was woefully aware of how devastating inflationary policies could be.  Have we forgotten about what the fall of the German mark  ultimately lead to? The below statement actually strikes the fear of god into me!

“Like every other tax, inflation acts to determine the individual and business policies we are all forced to follow. It discourages all prudence and thrift. It encourages squandering, gambling, reckless waste of all kinds. It often makes it more profitable to speculate than to produce. It tears apart the whole fabric of stable economic relationships. Its inexcusable injustices drive men toward desperate remedies. It plants the seeds of fascism and communism. It leads men to demand totalitarian controls. It ends invariably in bitter disillusion and collapse.”

-Henry Hazlitt (Economics in One Lesson)

· Discourage prudence and thrift- government encouraging spending ?

· Gambling and speculation -Flipping houses, LBO’s-?

· Desperate remedies-monetizing debt-?

I believe that the above statement by Hazlitt not only summarizes how we got into this “credit crisis” but also summarizes where we will end up. Monetizing debt is just the start of the desperate remedies. I fear that the impudence of the governments of the world will lead to further instability. Now, as brutal is this instability may end up being it is my job, I still look for future investing opportunities.  That’s why I have coined the GGO Investment Theory- Guns, Gold & Ordinance (perhaps we should substitute oil for ordinance?). That is not to say that I recommend running out and buying stocks, because I actually wholeheartedly believe that equity indexes will cough up another 40%–that’s right I said 40%–within a year. When the cough up comes, however, I will be ready to pick up some defense stocks on the cheap. As far as gold goes, well you better have some of that before that cough up comes, because otherwise you will be paying up to own the bullion.

Wendall Wilkie Gold, Inflation, Stock Market defense stocks, economics in one lesson, Gold, Hazlitt, Inflation, oil

Every morning my Blackberry starts blowing up at about 5:45 am with overnight headlines and every morning I feel like I am having a continual nightmare. Luckily I usually don’t have any actual nightmares while my body enjoys the the peace and quiet that is known as REM.

This mornings nightmare listed below.

US stocks sink to lowest since 1997

Feb 23 2009 22:00

US stocks hit their lowest level since 1997 as investors took scant comfort from the prospect that Washington would increase stakes in key lenders without nationalising the institutions outright

Read more >>

http://link.ft.com/r/M2ZOXX/JOUL7/102FY/AN6Z9/V4WAM/AZ/t

AIG wants new loan terms, again. Sources say AIG (AIG) is looking to overhaul its $150B government bailout to reduce its financial burden, and in the process would further expose taxpayers to the troubled insurer’s balance sheet. The new plan would have $60B of the government’s loan repaid with a combination of debt, equity, cash and operating businesses (The Wall St. Breakfast).

Hedge funds face off on more regulation. One of the world’s largest hedge fund groups is ready to propose new measures that would push money managers to open up their businesses. The Alternative Investment Management Association, a U.K. group with members in the U.S. and many other countries, could release a proposal as early as today suggesting hedge fund managers take such steps as registering with regulators and having regular contact with authorities about their businesses.

UBS casts a long cloud over bourses

Feb 23 2009 23:46

UBS fell sharply on Monday as questions continued to be raised over the long-term future of Swiss private banking

Read more >>

http://link.ft.com/r/M2ZOXX/JOUL7/102FY/AN6Z9/2EQX4/AZ/t

Japan’s buyer of last resort

Government mulls share-buying spree.

Email when ready

http://link.ft.com/r/EB8122/S5O6Z/QPLX2/DU0MK/1IEXM/6C/t?a1=QPLX2

Wendall Wilkie Stock Market