Jim’s Mailbox

Posted at 4:30 PM (CST) by & filed under Guild Investment, Jim's Mailbox.


Perhaps Taiwan read “GEAB N28 Global systemic crisis Alert – Summer 2009: The US government defaults on its debt.

CIGA Bernie

Taiwan Dumps Fannie, Freddie. And Uncle Sam?

Despite bailout, GSE debt is eschewed by major foreign investor, and ally.

WHO LOST TAIWAN? After Mao drove the Nationalists off the Mainland in 1949, the cry went up among U.S. conservatives, “Who lost China?”

Now Washington might well worry about who lost Taiwan as a major investor in U.S. agency securities as the Republic of China has openly questioned their credit quality — even after the federal government has committed hundreds of billions of dollars to bail out mortgage giants Fannie Mae and Freddie Mac.

Beyond that, Washington might well worry that other nations also no longer view its agencies — and now, by extension, the very credit of the United States of America — beyond question.

Taiwan’s financial regulators reportedly have ordered that nation’s insurance companies to pare their holdings of the debt and mortgage-backed securities of Fannie Mae (ticker: FNM), Freddie Mac (FRE) and Ginnie Mae securities, according to a report on the Internet site of Asian Investor magazine.

Such an order would be a stunning rebuke to Washington, coming a little more than a month after the federal government effectively nationalized the mortgage giants. Fannie and Freddie last month were placed into conservatorships with the Treasury standing ready to inject up to $100 billion through purchases of preferred shares in the government sponsored enterprises.


Dear Jim,

I couldn’t help noticing the parallels in language between the following two items:

“Lower Federal tax revenues in the face of increased federal spending causes geometric, not arithmetic, rises in the US Federal Budget Deficit.”
–Jim’s Formula, September 1, 2006, Point 6.

“The financial rescue operation will force the federal government to borrow an unprecedented amount of money as the budget deficit climbs to record heights, a top Treasury Department official said Tuesday.” … “[Anthony Ryan, Treasury’s acting undersecretary for domestic finance] said the rising borrowing was occurring against the backdrop of a slowing economy.”
–Associated Press, M. Crutsinger, “Treasury Predicts Huge Government Borrowing Needs,” October 28, 2008.

Thanks for the heads up!
CIGA Richard B.

Dear Richard,

In one sense, an event like this is a compliment.

Can you imagine when the FRGCR appears out of some major meeting of the sages on international finance?


Dear Jim,

“World Will Struggle to Meet Oil Demand” is a front page headline in the Financial Times today.

The gist of the article is that the first authoritative public study on the biggest oil fields has been completed. It shows that production is falling much faster than had been thought. The International Energy Agency authored a report entitled “World Energy Output” which states that “the natural annual rate of output decline is 9.1%”. All I can say is WOW! This is much faster than anyone had thought. This means a lower long term supply of oil, and resulting higher long term prices for oil, coal and other energy sources.

Also today, soft commodities began a much overdue rally. We think food commodities and gold can continue to trend higher. Ending food stocks after the current harvest are at 34 year lows. The potential for food shortages and starvation in parts of the world remains high.

Respectfully yours,
Monty Guild

Dear Monty,

Add to this that not if but when Pakistan blows oil will rise $100 in 60 days from whatever price it is at that time.


Dear Jim,

This Bloomberg article explains why we have been harping on free trade for such a long time. Free trade is essential. Look at Iceland, when confidence in their banks evaporated, there was a currency collapse and inflation. Free trade became an impossibility due to a lack of trust in the currency. By the way, the Icelanders who owned gold, did great compared to everyone else, and they can now buy real estate companies and other assets cheaply in Iceland.

Best regards,
Monty Guild

Credit `Tsunami’ Swamps Trade as Banks Curtail Loans (Update2)
2008-10-29 10:49:09.610 GMT
By Michael Janofsky, Mark Drajem and Alaric Nightingale

Oct. 29 (Bloomberg) — Richard Burnett’s lumber company had started loading wood onto ships heading for China. More was en route to the docks. It was all part of an order that would fill 100 40-foot cargo containers.

Then Burnett got a call from his buyer at Shanghai VIVA Wood Products Co. The deal was dead. He told Burnett, president of Cross Creek Sales LLC in Augusta, Georgia, he couldn’t get a letter of credit to guarantee payment for at least six months.

“It was like a spigot got cut off,” Burnett said, recounting the transaction that fell apart in July. The inability of buyers in China and Vietnam to get letters of credit has cost his company as much as $4 million this year, a third of projected revenue, forcing him to lay off 15 of 35 employees, he said.

Suppliers of oil, coal, grains and consumer products from Chicago to Mumbai are losing sales as the credit crisis spreads beyond financial institutions, and banks refuse financing or increase the fees for buyers. Coupled with declining demand, the credit squeeze is threatening international trade, one of the lone bright spots in the global economy.