Debt Forgiveness & Trading Markets

Chris Whalen's Thoughts on Debt

Chris Whalen is Senior Vice President and a Managing Director of Institutional Risk Analytics. Chris edits the firm's popular newsletter, The Institutional Risk Analyst, and heads IRA's financial advisory operations. Chris has worked as an investment banker, research analyst and journalist for more than two decades. Chris speaks with Jim this week about the financial reform legislation and how it does not solve "too big to fail". Chris also discusses the credit crisis, and how he believes it will resolve itself either through default or debt forgiveness.

Summary of Chris Whalen's Financial Sense Newshour Discussion about Debt

Chris Whalen doesn't think private sector ever recovered. Most assistance has gone to banking sector, not trickled into economy. Households still stuck with too much debt, strategic defaults still high. Available sources of credit and demand for loans not there. Since the cash markets are so tight banks are enhancing their returns through OTC derivatives, complex structured assets. Dodd-Frank doesn't eliminate the risk being passed down to bank customers. OTC is a creation of the Fed, a retrograde model being used since banks are not profitable on an exchange based system. Mentions upcoming book, Inflated: How Money and Debt Built the American Dream. So much of what was thought to be GDP in the past was simply funded with debt. Contrasts to SNL crisis and current credit crisis. Federal Reserve zero interest-rate environment is simply leading to greater excesses in derivative markets, which simply funds the banking institutions and not the individual investor nor those focused on saving for retirement.

Bill Fleckenstein's Thoughts on the Market

Bill Fleckenstein, President of Fleckenstein Capital, a money management firm based in Seattle. Bill speaks with Jim Puplava this week about the conflicting cross-currents in the markets, and that it is a trader's market at present. Bill sees the markets as range-bound until the next round of quantitative easing (QE2) from the Federal Reserve. Bill and Jim also discuss gold and the gold equities, as well as finding returns in a zero-interest-rate environment.

Summary of Bill Fleckenstein's Discussion about the Market and Investing

(21:20) A whole generation of investors, fund managers who grew up under Greenspan's tutelage that are now facing a wake-up call. Expects market to remain difficult. Too many people relying purely on charts, quantitative analysis, and not fundamentals. Doesn't recommend going short at this point until QE2 is behind us. Upside very limited too. Don't put money in a bond fund. Money management industry moved from its roots, prudence no longer important. QE2 is coming, may not precipitate another bubble but could lead to a peak in bond market. Companies not likely to take on more liabilities, i.e. employees, with capriciousness and unknowns related to current administration. Continually asking the prudent to bailout the reckless. If the realestate market got down to a place where it was cheap, people would buy but the government is trying to prop it up for those who bought at overextended levels. Thinks money is still to be made in gold stocks. Finding reserves for gold and silver is very difficult. Stock market is uninteresting at present but does believe in beneficiaries from money printing: gold, gold ming stocks, etc. Writes a weekly column called Contrary Chronicles and features content at www.fleckensteincapital.com.

Financial Sense Newshour Host Jim Puplava Responds to Listener Questions

(42:10) (Jim's responses not shown).

• 1st call: Gives a website concerning a new solar thermal technology being used at www.websites-host.com/energy.
• 2nd call: Says Matt Simmons was way off on his assessment of BP's main blowout being miles away from the one they showed on TV and that Jim should have done a better job at taking him to task.
• 3rd call: Asks for people to email Alex Jones urging him to appear on Jim's show next week since he didn't want to join the debate.
• 4th call: Says q-caller from last week was incorrect about all oil flowing on top of the water. Some, like heavy sour crude, does not float but is heavier than water.
• 5th call: Advocates what's called "institutional memory" with previous forecasts by guests. Basically, calling them out when a previous forecast didn't unfold the way they said it would.
• 6th and 7th call: Speak about the loss of Matt Simmons and how they'll miss him.

Note: Thanks to FSO Staff Member Cris Sheridan for his summaries of the Financial Sense Newshour content.