Dear CIGAs,

A caller today asked me why Gold was up.

My answer is simple:

Up is right and down is wrong!

Just ask Alf:

* Major ONE up from $256 to $1,015 (actually 4 times the $255 low);
* Major TWO down from $1015 to $699, say $700 (a decline of 31%);
* Major THREE up from $700 to $3,500 (a Fibonacci 5 times the 
$700 low);
* Major FOUR down from $3,500 to $2,500 (a 29% decline);
* Major FIVE up from $2,500 to $10,000 (also a 4 fold increase, 
same as ONE)

This move is beyond $1224, beyond $1650 and up to $3500. That is only for starters.

Jim,

As you know by now I farm for a living. Many farmers sold grain to ethanol plants this past summer between 5 and 8 dollars per bushel. Many of these ethanol plants have gone into bankruptcy and don’t have to pay off the counter-party (the farmer) even though there is a contract. So why do the counter-parties to AIG’s debt have to be paid off? How many farmers lost millions because they chose to pass price risk to ethanol plants who are now bankrupt.

CIGA and in your debt,
Eddie

Pressure to reveal major AIG counterparties grows
Some suggest fees for firms that got billions of dollars from insurer’s bailout
By Alistair Barr & Greg Robb, MarketWatch
Last update: 6:35 p.m. EST March 3, 2009

SAN FRANCISCO (MarketWatch) — Calls increased Tuesday to reveal the financial institutions that got almost $40 billion in collateral from American International Group shortly after the government first bailed out the insurer last year.

AIG almost collapsed in September after ratings agency downgrades triggered demands for billions of dollars in extra collateral from firms that had bought derivative-based protection from the insurer on complex mortgage-related products known as collateralized debt obligations, or CDOs.

AIG didn’t have that much money and faced bankruptcy. But it was saved by an $85 billion emergency loan facility from the Federal Reserve.

More…

Dear Eddie,

I answered your question earlier in the day when I posted the FYI article on AIG.

Regards,
Jim

Jim,

Here are two of the many pension plans in trouble:

Nebraska teachers

Hawaii Teachers

Oh crap, my wife is in the Missouri Teachers retirement plan!

As always, thank you for all you do!
CIGA Eddie

Jim,

Below is a story from today’s NY Times about how the specialists finally have to pay up pennies for decades of front running their clients.

CIGA By

14 Trading Firms Settle Charges for $69 Million
By DIANA B. HENRIQUES
March 5, 2009

More than a dozen Wall Street trading firms systematically cheated their customers of millions of dollars by improperly slicing bits of profit from countless trades, federal regulators said on Wednesday.

The Securities and Exchange Commission disclosed the allegations after negotiating settlements. The firms did not admit or deny the charges but agreed to pay a total of more than $69 million in forfeited profits and penalties.

The 14 firms named in the complaints are all “specialists,” trading firms that have a specific duty to maintain orderly markets by matching buyers and sellers and standing ready to conduct trades when buyers or sellers are scarce. They include units or subsidiaries of well-known Wall Street names, including E*Trade Capital Markets, Goldman Sachs Execution and Clearing, Knight Financial Products and TD Options.

Regulators said the firms had engaged in various types of “front-running,” which involves trading ahead of customer orders or timing their own trades to seize profits. For instance, specialists that had a big order to buy a stock would first buy it from a seller themselves and then illegally bid up the price moments before selling it to profit on the transaction.

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Dear Jim,

The numbers are truly staggering with more yet to come as things deteriorate further. Your formula is really gaining momentum!

Best,
CIGA Big Tatanka

More Than 8.3 Million U.S. Mortgages Are Under Water
By Dan Levy

March 4 (Bloomberg) — More than 8.3 million U.S. mortgage holders owed more on their loans in the fourth quarter than their property was worth as the recession cut home values by $2.4 trillion last year, First American CoreLogic said.

An additional 2.2 million borrowers will be underwater if home prices decline another 5 percent, First American, a Santa Ana, California-based seller of mortgage and economic data, said in a report today. Households with negative equity or near it account for a quarter of all mortgage holders.

“We have way too much supply and not enough demand,” Sam Khater, senior economist for First American, said in an interview. “People aren’t going to purchase a home as long as prices keep falling, and someone who is worried about their job isn’t going to purchase a home either.”

Prices in 20 U.S. cities fell 18.5 percent in December from a year earlier, the fastest drop on record, according to the S&P/Case-Shiller index. Sales of previously owned homes, which account for about 90 percent of the market, fell in January to the lowest since 1997, and new-home purchases plunged to the lowest since records began in 1963, the National Association of Realtors and Commerce Department said.

The total value of residential properties in the U.S. fell to $19.1 trillion by the end of 2008, down from $21.5 trillion a year earlier, First American said. California lost more than $1.2 trillion in value last year, accounting for roughly half of the national decline in housing values.

More…