Mike Morgan's Florida Real Estate Blog

Financial Crisis 301 - Pension Fund Ponzi Scheme

Mike Morgan, J.D., RIA, CRS, GRI — Thu, 14 Aug 2008 05:26:26 -0500

The Boogey Man - Yesterday I left off with a promise to talk about the Boogey Man. Well, the Boogey Man is the dark side of the pension funds. Let's start off with our dear friend Hank Paulson and his latest plan to allow Wall Street to acquire and manage pension funds. I swear to you, I didn't make that up. Paulson actually sent a plan to Congress to allow Wall Street firms to buy and manage pension funds. These are the same guys that brought us Auction Rate Securities (ARS), Credit Default Swaps (CDS), Collateralized Mortgage Obligations (CMO) and Structured Investment Vehicles (SIV) and all the derivatives and funny-money plans to extort fees from you and me.

Busted Pension Funds - Most pension funds are underfunded and will never be able to meet the obligations they have promised their members. That's a fact that we can't avoid. Wall Street and the managers of pension funds can spin it anyway they way, but the bottom line is . . . pension funds are underfunded. READ: The Ponzi Scheme that Tops The Housing Bubble.

The Players - In addition to the usual Wall Street suspects, along with Paulson at the head of Treasury, we have Charles Millard who is the top doggie at the Pension Benefit Guaranty Corp. (PBGC). Millard and his predecessors have not done their jobs over the past 20+ years. If we think Greenspan was the creator of "look-the-other-way" regulatory management, you've got to read up on PBGC. By the way, for those of you not familiar with PBGC, this is the Federal Government backing of pension funds, just like FDIC for banks. Basically, we the taxpayers are paying for all the fraud Wall Street executives can heap on us. And nothing will ever be done to stop the thievery, because the guys with power to stop it are paid handsomely to look the other way. Just look at Andrew Cuomo, and his handling of the Auction Rate Securities fraud. He could easily send hundreds of Wall Street boys and girls to jail for fraud. They've already admitted it, but they can buy their way out . . . with our money. C'est la vie. Andrew Cuomo will go down in history as one of the World's Grandest Hypocrites . . . and he will be handsomely rewarded for letting the Wall Street boys and girls off the hook. But let's get back to the Boogey Man.

Housing Bubble - What financial story would be complete without referring back to the Housing Bubble. One of the problems starting to unravel in the Pension Fund arena, is how much money pension funds have lost as a result of horrible investments in real estate and real estate related securities. Just take a look at the largest pension fund in the country CALPERS - California Public Employees Retirement System - with close to 10% of their assets in real estate and real estate related assets. In fact, I spoke with one person that believes CALPERS has as much as 35% of their assets in real estate related assets. But it gets worse. The boys and girls at CALPERS did deals just to do deals. A perfect example is how Lennar and LNR dumped LandSource on CALPERS. This was a deal CALPERS had no business even getting close to. CALPERS was scalped. And they are not the only pension fund to be scalped by builders, developers, land owners and the boys and girls on Wall Street that did deal after deal after deal after deal . . . to the point most of them had no clue what they were buying or selling.

One-Two Punch - It wouldn't be fair to say all the problems with pension funds are attributable to the housing bubble, greedy Wall Street managers and failed regulation. The second component to all of this . . . is we are living longer and inflation is as reliable as the Eveready Bunny. We should have built the two latter components into all of the models, but we didn't. And all the Kings Men couldn't put Humpty Dumpty together again.

Out of Sight - Out of Mind - For the most part, the pension problem is totally out of sight. It's long term, down the road for most people. And as with any good Ponzi Scheme, the alarms don't go off until it is too late. When we finally wake up and realize Wall Street raided the pension funds, it will be too late and the boys and girls with the money will be long gone.

Japan Too - Japan's public pension fund is the largest public pension fund in the world. Last year it lost almost $6 trillion Yen ($50B US). The fund has more than $150 trillion Yen that is run by Japan's bureaucrats. Japan is also exploring ways to boost the returns with alternative investments run by outside managers with performance based compensation. This might sound good, but the bottom line doesn't change. You can't get more out than you put in. And that is exactly what pension funds around the world are trying to do.

And the UK - The Pension Protection Fund (PPF) in Great Britain just announced that their aggregate funding position for UK defined benefit plans has dropped to a surplus of 8.3B Pounds at the end of June, from surplus of more than $53B Pounds just one month prior! That's not a warning sign. That's a big slap in the head. One of the UK's consulting firms, Redington Partners, released a report showing the FTSE100 pension plans have a $9B Pound deficit, down from a $21B Pound surplus. Startling numbers? You better believe it. And things get worse. Much worse.

On the bright side . . . Wednesday's Trades - We closed out two trades:

1 - 42% Gain - Wachovia Puts - WBVC Purchased July 22 and August 11 at $1.90
SOLD at $2.70 for a 42% Gain

2 - 30% Gain - Toll Brothers Puts - TEPUD Purchased August 12 at $1.20
SOLD at $1.50 for a 30% GAIN

** We added three (3) new positions Wednesdays. **

Mike's Blog - Behind Enemy Lines - www.888Mike.com

Mike's Crisis Investing Website - www.Morgan.com

Financial Crisis 201 - Unwinding of Hedge Funds

Mike Morgan, J.D., RIA, CRS, GRI — Wed, 13 Aug 2008 07:20:32 -0500

Blog Link for Re-Posting - http://realestateandhousing2.blogspot.com/2008/08/financial-crisis-201-unwinding-of-hedge.html

One of the most frequently asked questions I hear is, where did all the money come from to fuel the housing bubble? The answer is very complicated but here are the three big sources of funds that fueled the housing bubble and the financial crisis we are experiencing.

1 - Our Savings - This is no longer as transparent as it was. It has become painfully clear that the banks and financial institutions we trusted with our savings, turned around and loaned it all out to fuel the housing bubble . . . and condos to the sky and thousands of empty office and commercial properties. The banks and financial institutions have fallen 70% and more, with a handful going out of business . . . at our expense.

2 - Big Money - The second source of jet fuel for the housing and financial conflagration has been Hedge Fund money. The source of hedge fund money is private investors and "pension funds" that wanted to juice up their returns. However, that source of fuel is all but cut off, with just a few really dumb hedgies still "investing" in the real estate markets, buying junk mortgages or creating other fancy ways to suck up the fees they charge. I saw two huge deals here in Florida just this week. The only way to describe this is . . . criminal fraud.

Zero to 8000 in 60 Seconds - Hedge funds grew from just $39B in 1990 to more than $2T at the peak last year. At the peak, there were more than 8,000 hedge funds. We've lost about 500 over the past year, and that number is going to hyper-escalate moving forward . . . but there is a catch (see below). In any event, these two numbers scream out . . . painful unwinding ahead. We are already seeing it, with some estimates of growth in hedge funds for the first six months of this year showing an outflow of funds, and the most optimistic numbers showing just a $30B inflow, compared to more than $150B in the first six months of 2007. Keep that in the back of your mind . . . a $2T unwind at 7:1 leverage.

Locked Up Funds - Ah-ha. Here's the catch. You can't have your money back when you want it. It's not that simple, but it is. For many hedge fund investors they agreed NOT to pull their money out for two years, five years . . . and for some 10 years. The "smart" investors (read: greedy) only saw the huge returns. They ignored the leverage of these funds that ran as high as 30:1, but the most talked about number is 7:1. We don't even blink an eye at 7:1 leverage anymore. Not when our banks and financial institutions are all at 20-30:1.

What hedge fund investors are now learning, is they can't get their money back in some cases. In fact, in most hedge funds, there are restrictions. If the investors could pull their funds immediately, we would see a more intense unwinding than we are already seeing. But the fact remains, the hedge fund investors are pulling out, and another leg down in the unwinding is just around the corner. But it gets worse. Much much worse.

Boogey-Man - Tomorrow I will discuss the Boogey-Man . . . Pension Funds or should we say Dumb-Dumb Funds for a better description of what many of these "managers" have done with pension fund assets. You see, they didn't care much about locking up funds for 2-10 years, and they didn't care that the hedge funds were leveraged at levels they are not allowed to reach themselves . . . and they didn't care that the hedge funds suck up huge fees. Tune in for a look a the Boogey-Man tomorrow.

Mike's Blog - Behind Enemy Lines - www.888Mike.com

Mike's Crisis Investing Website - www.888Morgan.com

The Housing Crisis is Still the Party Killer

Mike Morgan, J.D., RIA, CRS, GRI — Tue, 12 Aug 2008 06:33:05 -0500

It seems like we have lost focus . . . or better yet our focus has been diverted. Nothing has changed when it comes to the outcome of the housing bubble. We still move into a Depression.

BASICS - Home prices are still falling, and housing markets are seizing up and failing. Seizing up . . . because financing has swung from Anybody and Everybody to Nobody. Failing . . . because affordability has not gotten better, but worse. Interest rates are higher. Incomes are lower. Mortgages are tougher to qualify for. And trying to by a foreclosure or short sale property comes with many hidden traps. But overall, less homes are selling and they are selling for lower and lower prices. Moreover, entire communities are being written off as empty homes plague neighborhoods. And it gets worse.

ABCs - Remember these. The CDOs, SIVs, SIV Lites, ARSs, etc. Andrew Cuomo made a peacock-esque showing by going after the financials for Auction Rate Securities issues, but he missed a few things in his haste to make a name for himself. First, he didn't send anyone to jail, even though their was fraud all over the place. In fact, the institutions did all but admit fraud in a signed document. Second, he didn't address the exposure of the institutional clients to ARS. His big day only covered consumers . . . and for some of these people, the institutions have months to make good on the money they owe these folks.

Merrill Lynch may have sold $30B worth of their garbage, but they also financed that deal, and they still have a lot of garbage on the books. The same for the rest of the field, like Wachovia. Bob Steel may be Paulson's bud, but that's not going to help when Wachovia finally has to come clean on their ABCs and Golden West Financial's garbage. Remember Golden West? Without question, the worst mortgage related deal of the century. Wachovia purchased Golden West at the very top of the market in 2006. Not only was it a bad deal, but Wachovia bought a lot of garbage they didn't understand . . . and probably still have not figured out.

So before we write off the housing bubble and the markets continue their march to 15,000, let's not forget what's in the closet. If we don't want to clean it out now, we'll have to clean it out later when it gets a lot stinkier. Paulson's going to do everything possible to keep the closet door out of site and locked, until after the election. He's doing a great job of it, but the stench is slipping out from under the door.

REMEMBER THIS - "I want to say this as loud as I possibly can: three to five years, 20 percent revenue growth, 20 to 25 percent EPS growth. And we're heading to 40,000 stores." Howard Schultz, Founder and CEO of Starbucks on November 17, 2006. Why is this so important? Because Starbucks is a perfect example of just one side effect of the housing bubble. There are others, but let's use coffee as the most basic. The same fate is unraveling in restaurants and retail, as well as leisure, entertainment and hospitality.

AT THE BOTTOM - If you believe Jim Cramer and Joe Granville, we hit the bottom. Unfortunately, boys like Jim and Joe refuse to look behind the closet door.

DOOR #2 - By the way, behind Door #2 is the Pension Fund Monster. He was hiding under the bed, but he's slipped out and know he's in the closet next to the Housing Bubble Monster.

Door #3 - The identity of this Boogey Man Monster is reserved for clients only.

CRISIS INVESTING - If you're not investing for the financial crisis of the century . . . this one and and the last one combined . . . you are going to be behind Door #3.

Mike's Blog for Crisis Investing - www.888Mike.com

Institutional Website - www.Morgan-Florida.org

The Russian Bear Awakens

Mike Morgan, J.D., RIA, CRS, GRI — Sun, 10 Aug 2008 01:07:46 -0500

This is one time I don't want to be anywhere near Enemy Lines. This is the real thing, even though the markets are not making much of it. On the one hand, this could escalate very quickly. Georgia is already calling for NATO and US support. As of now, nothing is being done, but if Putin continues to annihilate these people, NATO and the US may react. On the other hand, Putin could end it all before the markets open on Monday.

A quick look at Associated Press photos shows us that Russia is bombing civilian targets. If it continues, the West will have two choices. One, we get involved. Two, we turn our backs. Neither decision is good for the world or the financial markets. But those are good developments for our investments.

Our knucklehead President told Putin to "back down." The last time I told a bully to back down, he beat the living daylights out of me in front of everyone in the schoolyard. That was 45 years ago. Bullies have not changed. The next time I was bullied, I punched the guy in the gut as hard as I could. Then I slammed his head into the ground, and with one swift kick to the head, I knocked him out and several of his teeth. I was never bulled again, even though I was the smallest kid in my class. When we let bullies and crooks get away with things, we get what we deserve. We are getting what we deserve on Wall Street. Even this week, Cuomo could have, and should have, sent hundreds of executives to jail for fraud. Only one Senator had the guts to ask, "why aren't these guys going to jail."

As for Russia, we had the chance to address all of those issues on a global scale. But we let the bully catch his breath, and Putin is the best of the bullies. He is one of the most elite KGB there ever was. That fact has not gained much traction, but when you go Behind Enemy Lines, you hear it all.

Think about this. What led us out of the 1907 financial crisis and the 1929 financial crisis? The answer is WWI and WWII. You will not want to consider what leads us out of the current financial crisis. From 1929 to 1933 things grew dimmer and dimmer throughout the world. Hitler came to power, and the rest is history. As for the 1907 financial crisis. Well, World War I started upon the assassination of Archduke Franz Ferdinand, heir to the Austro-Hungarian throne. That sounds a little crazy, but that's what kicked it all off. It was more complicated than that, but history marks that as what sparked World War I.

What is happening in the world now will unfold precisely as it should for our Crisis Investment Portfolios. I repeat . . . do not own any stocks or bonds. You want to be in cash, gold or short the markets. As you know, my preference for now is to be heavily short the markets, and as we earn profits, we can move them to hard assets.
Hang in there and continue to build your short positions. We had two great trading days this week for trading clients. We basically sat on our hands the other three days. I expect Monday to be a fantastic trading day. And remember, if you got into the DIG position Friday . . . and then doubled up as I advised, Monday should see a nice pop, unless Putin and Saakashvili kiss and make up. That's about as likely to happen as Paulson admitting the Fed is busted.

If you are a trading client, please make sure you check in with me ASAP. I will be taking calls tonight until 2:00 AM (Eastern) and Sunday from 7:30 AM till whenever. We have a number of things to discuss individually, but a few of you I will do as your group(s).

My Crisis Investing Blog - www.888Mike.com

Institutional Website - www.888Morgan.com

Gold Confiscation - Can It Happen Again?

Mike Morgan, J.D., RIA, CRS, GRI — Wed, 06 Aug 2008 16:15:20 -0500

For those folks that think Gold is a safe haven, history may repeat itself. The other night Greenspan spoke about solvency problems and recapitlization. As usual with Greenspan, he left out the most critical part of his blabbering . . . how. How do we recapitalize? If the economy melt down far enough, the only way will be a repeat of what you will read below . . .

From: President of the United States Franklin Delano Roosevelt
To: The United States Congress
Dated: 5 April, 1933 Presidential Executive Order 6102

Forbidding the Hoarding of Gold Coin, Gold Bullion and Gold Certificates By virtue of the authority vested in me by Section 5(b) of the Act of October 6, 1917, as amended by Section 2 of the Act of March 9, 1933, entitled

An Act to provide relief in the existing national emergency in banking, and for other purposes~',

in which amendatory Act Congress declared that a serious emergency exists,

I, Franklin D. Roosevelt, President of the United States of America, do declare that said national emergency still continues to exist and pursuant to said section to do hereby prohibit the hoarding gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations and hereby prescribe the following regulations for carrying out the purposes of the order:

Section 1. For the purpose of this regulation, the term 'hoarding" means the withdrawal and withholding of gold coin, gold bullion, and gold certificates from the recognized and customary channels of trade. The term "person" means any individual, partnership, association or corporation.

Section 2. All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve bank or a branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion, and gold certificates now owned by them or coming into their ownership on or before April 28, 1933, except the following:
(a) Such amount of gold as may be required for legitimate and customary use in industry, profession or art within a reasonable time, including gold prior to refining and stocks of gold in reasonable amounts for the usual trade requirements of owners mining and refining such gold.
(b) Gold coin and gold certificates in an amount not exceeding in the aggregate $100.00 belonging to any one person; and gold coins having recognized special value to collectors of rare and unusual coins.
(c) Gold coin and bullion earmarked or held in trust for a recognized foreign government or foreign central bank or the Bank for International Settlements.
(d) Gold coin and bullion licensed for the other proper transactions (not involving hoarding) including gold coin and gold bullion imported for the re-export or held pending action on applications for export license.

Section 3. Until otherwise ordered any person becoming the owner of any gold coin, gold bullion, and gold certificates after April 28, 1933, shall within three days after receipt thereof, deliver the same in the manner prescribed in Section 2; unless such gold coin, gold bullion, and gold certificates are held for any of the purposes specified in paragraphs (a),(b) or (c) of Section 2; or unless such gold coin, gold bullion is held for purposes specified in paragraph (d) of Section 2 and the person holding it is, with respect to such gold coin or bullion, a licensee or applicant for license pending action thereon.

Section 4. Upon receipt of gold coin, gold bullion, or gold certificates delivered to it in accordance with Section 2 or 3, the Federal reserve bank or member bank will pay thereof an equivalent amount of any other form of coin or currency coined or issued under the laws of the Unites States.

Section 5. Member banks shall deliver alt gold coin, gold bullion, and gold certificates owned or received by them (other than as exempted under the provisions of Section 2) to the Federal reserve banks of there respective districts and receive credit or payment thereof.

Section 6. The Secretary of the Treasury, out of the sum made available to the President by Section 501 of the Act of March 9, 1933, will in all proper cases pay the reasonable costs of transportation of gold coin, gold bullion, and gold certificates delivered to a member bank or Federal reserve bank in accordance with Sections 2, 3, or 5 hereof, including the cost of insurance, protection, and such other incidental costs as may be necessary, upon production of satisfactory evidence of such costs. Voucher forms for this purpose may be procured from Federal reserve banks.

Section 7. In cases where the delivery of gold coin, gold bullion, or gold certificates by the owners thereof within the time set forth above will involve extraordinary hardship or difficulty, the Secretary of the Treasury may, in his discretion, extend the time within which such delivery must be made. Applications for such extensions must be made in writing under oath; addressed to the Secretary of the Treasury and filed with a Federal reserve bank. Each applications must state the date to which the extension is desired, the amount and location of the gold coin, gold bullion, and gold certificates in respect of which such application is made and the facts showing extension to be necessary to avoid extraordinary hardship or difficulty.

Section 8. The Secretary of the Treasury is hereby authorized and empowered to issue such further regulations as he may deem necessary to carry the purposes of this order and to issue licenses there under, through such officers or agencies as he may designate, including licenses permitting the Federal reserve banks and member banks of the Federal Reserve System, in return for an equivalent amount of other coin, currency or credit, to deliver, earmark or hold in trust gold coin or bullion to or for persons showing the need for same for any of the purposes specified in paragraphs (a), (c), and (d) of Section 2 of these regulations.

Section 9. Whoever willfully violates any provision of this Executive Order or these regulation or of any rule, regulation or license issued there under may be fined not more than $10,000, or,if a natural person may be imprisoned for not more than ten years or both; and any officer, director, or agent of any corporation who knowingly participates in any such violation may be punished by a like fine, imprisonment, or both.

This order and these regulations may be modified or revoked at any time.
/s/
Franklin D. Roosevelt President of the United States of America
April 5, 1933

The World's Grandest Ponzi Scheme Unravels

Mike Morgan, J.D., RIA, CRS, GRI — Sun, 03 Aug 2008 07:09:28 -0500

Pathetic Piping Puppets - When I see some of today's financial "experts" telling us why there was a housing meltdown and why there was a mortgage crisis and why we now see the financial system crumbling . . . I find myself yelling at the TV, eventually launching the clicker at the screen. It's an expensive habit, but I don't yell as much at the guys like Mozilla, Paulson, Greenspan, Schwartz or any of the other guys that ran the Ponzi scheme. No, those guys were bad, but not nearly as bad as the ABC, CBS, NBC, FOX, CNN and CNBC financial experts who had the ability to do something, because today it is all about media. Instead, the clowns like Cramer, Kudlow, Glen Beck, Wolf Blitzer and even sweet Miss Becky and innocent Erin continued to fuel the fire. Instead of reporting on what was happening under the dirty sheets, they only reported on the "happy times" as they all bellied up to the bar and fed like pigs.

To Catch A Predator - Just think about it . . . MSNBC Dateline ran child molester stings until we cried Uncle. What would have happened if they did the same about the financial crisis. If they had done that, they would have all lost their jobs, because Paulson's fraternity of Goldman Sachs brothers would have eviscerated the advertising of the media through strong-arm tactics on their clients. Why was it OK to run To Catch A Predator until we puked? Because the sexual predators were not buying air time. Do you realize, Dateline would not even have had to change the name of the show. They could have just changed the format from sexual predators to Wall Street's financial predators. If they want to call it like it is, start calling it where it hurts. By the way, the answer to the most frequently asked questions I receive is, Yes. I do wear a bullet proof Kevlar vest. I hired another body guard last week. And I never sleep in the same place twice.

With that out of the way, let me ask the question no one wants to ask. What in the world were our politicians and attorneys general doing? Well, they all knew what was going on, including Senator Bunning. And they were the only ones that could have really stopped it, but they were too busy dining and dancing with Paulson's frat boys here and abroad on lavish junkets. I'm going to get emails about that, but luckily I have an enlarged fluorescent orange delete key.

The BOSS Speaks - If you really want to laugh and cry at the same time, you must listen to Greenspan. Now he's telling us "this was an accident waiting to happen." Hold on a minute. He was the guy with the keys. He was the guy with the car and the money to put the gas in the car. He also wrote the rules on how to drive the car. And . . . he waived all restrictions on who could drive the car. The Greenspan rules state . . . and I read them again a few minutes ago to confirm: Drivers Include - Anybody, Everybody, Somebody and Nobody . . . but not me.

This week Greenspan told us we crashed. The car is a total wreck and the only survivors are on life support . . . with severe brain and limb damage. The question still remains, who was driving. Was it Nobody or Everybody? Or was it just Anybody? Maybe it was Somebody, but we know it wasn't Greenspan. Or at least that's what he says now.

The Cleaner - Just like all gangster movies have cleaners to get rid of the dead bodies, we have Paulson. Think about that. We had a typical "old time" gangster boss (Greenspan) totally out of touch with reality, but surrounded by "yes-men" sucking off the money created by his directives. Kind of like the generation of gangsters that moved from a no-drug policy, into cocaine and heroin at the urging of his young lieutenants (Paulson, Steele, Schwartz, Rubin, et al). The old bosses were clueless, and it all ended in collapsed gangster families, bloodshed and now chaos. So now we bring in The Cleaner, Paulson. And he immediately calls in one of his lieutenants, Wilson. These are the guys that belonged to the global fraternity that created and executed the Ponzi scheme. As for the "bail-out." It's restricted to friends and family. There is no bail-out for the public or for the pension funds that bought into the Ponzi scheme. But I am not going to re-hash it all. I've written about it long enough, and I took a lot of heat in my professional career and my personal life. You can read much of what I have written on my blog and institutional website.

Let's talk about what is happening now . . .

Depression - Totally unavoidable. Bank on it. Well . . . you won't be able to bank on it, but you can bet on it. We are not only headed for a Depression, but a violent Depression that will be far worse than 1929. Some experts believe the United States will fall into the chaos, bedlam and anarchy that tore apart Yugoslovia. I am not going that far, but I know our morals and ethics are not the same as they were in 1929. Moreover, we are a far more violent society and totally dependent upon a well oiled system for delivery of food and basic services.

Bank Failures - I warned that Fridays would become known as F3 - FDIC Failure Fridays. And Voilá . . . two bank failures on Friday, July 25. Then another bank failure a week later, after the market closed, on August 1. Next week? Maybe none, but maybe 10 . . . or more. And here's why.

I am on the ground, in the trenches, and behind enemy lines. To repeat for those new to my information, I own a real estate brokerage in Florida and I serve as a consultant to banks, financial institutions, mutual funds and hedge fund managers . . . as well as builders and developers. So when I talk, I talk from Behind Enemy Lines. Unfortunately for clients and readers, I can't always share as much detail as I would like because of confidentiality concerns. My institutional clients appreciate that, because they can feel comfortable discussing their portfolios, problems and potential outs.

I can tell you this. We will see at least 100 bank failures before the end of the year. What's important about that statement, is it is not another rear-view mirror statement from one of the financial experts on TV or some of the others that write blogs and columns . . . but never venture out into the world of reality. I will share what I am seeing on the ground and hearing from my institutional clients here and abroad.

US Banks - I work with banks on two levels. One, we offer services to banks selling foreclosed properties to consumers. Two, we offer services to banks trying to determine what they own, what it's worth and what to do with it. The latter includes evaluating portfolios for bulk sales and trying to coordinate these transactions. Let me start with the first level of services.

Banks and lenders that are foreclosing on properties have managed to bumble the process of disposing of foreclosed properties. Then again, as I have noted many times, banks are not in the real estate business, and I warned that they would be the group to drive prices into the ground, finally collapsing the entire system. That is exactly what is happening.

The systems developed by banks and lenders are horribly convoluted or they have farmed the process out to asset managers that often are "totally" incompetent. I thought we might see this start to correct itself, but it is actually getting worse . . . and now banks and lenders are the ones throwing jet fuel on the fire. For my residential brokerage, we have reached the point where we must carefully evaluate whether we even want to take these listings. You heard it right.
Most brokers would kill for listings of foreclosed properties. These properties are often priced below the market so they can sell fast, but that is rare. Most of these properties come with a laundry list of headaches and expenses. And when they do sell, the asset managers are skimming a full third of the commission off for themselves.

Real estate agents still vie for these listings, because we have an industry that is not regulated, with a low barrier of entry, and 98% of our industry is part-time. Agents don't understand what is involved with the sale of foreclosure properties, and lenders don't take the time to develop procedures to avoid incompetent real estate agents . . . just as the lenders ignored the issues with mortgage brokers during the development of this crisis.

I will shed a little light on this for those not in the industry. Foreclosure listings come with a laundry list of Things To Do. This begins with occupancy reports and rekeying of the property, that can quickly escalate into initiating the eviction process if there is an owner or tenant in the property. And once you gain possession, there is the trash-out, clean-up and repairs. This process alone can take several weeks and cost the agent thousand of dollars. Listing agents must pay for all of these expenses, as well as place utilities in their own name. Even after getting over these hurdles, which on average takes a month, the property then must be priced. That process can take 2-3 weeks, and it is so riddled with inefficiencies that most properties are overpriced because of the time it takes to complete this process, and the level of competence of those providing the Broker Price Opinions.

100% Loss = Busted Banks - To get to the stage where we have a price on a listing, the lender has already spent tens of thousand of dollars. Here's a basic example for a $400,000 mortgage. The property is most likely only worth $250,000 now. I have previously written about the process and expense involved in property disposition, so I will cut to the chase. A lender will be lucky to clear $125,000 on this property. This is not a typical example. The typical example is a $250,000 mortgage where the property is now worth less than $150,000 and by the time you carve out all the expenses . . . the bank has a zero or negative. The reason for the zero on the lower priced property, is because many of the expenses (i.e. foreclosure process) are the same for a million dollar property as they are for a $100,000 property. So here is the question for Paulson, Bernanke and Bair. How can any of our banks survive when they are taking 70% -100%+ hits on mortgages? PB&B will tell you these problem mortgages make up less than 2% of total mortgages. Huh? What? I've got news for them. I have no idea where they are getting their numbers, but you don't even have to go behind enemy lines to see through the numbers they are trying to feed us. Drive around and count For Sale signs. Now multiply that by a factor of 2-10 depending upon where you live and whether signs are allowed in all neighborhoods. Now double that number for the homes that are moving into the foreclosure process, and then double it again because things are getting worse (quicker), not better.

Admitting Defeat - The lenders I speak with know they are dead. They have no problem admitting it now. They realize their jobs are over, and they are on borrowed time. They are nothing more than liquidators now, and they are doing a lousy job at it.

We built too many homes and have too many builders. The markets are correcting that. We have too many mortgages and too many mortgage brokers. The markets are correcting that. And we have too many banks. The markets are correcting that as well. Paulson's tinkering with the ability to short his Fav19 will come back to mark him in history. It was un-American. This is not Russia or Venezuela. If the markets were not working because of naked shorting, then put the bastards in jail that were violating the rules. Unfortunately, that would mean Paulson was going to have to throw his frat boys in jail. Paulson knew what he was doing with the Fav19, just as he did with the Housing Bill. Paulson had one purpose, and one purpose only in both the Fav19 and the Housing Bill . . . to bail-out his buddies. That's it. Full Stop.

The Housing Bill is a complete, absolute and autarchic ploy by a man that has far too much power and control. I am not going to write about the Housing Bill. I am going to save that for our August 7th Conference Call. If you are interested in the Conference Call you can purchase a dial in code - Mike@MorganFlorida.org Clients receive free access codes and will receive the replay link.

I'm going to share some things that I am doing in my model portfolios as well as some of the trading we are doing in our trading portfolios, but you will find sections below that are only a portion of what I wrote, and the portion not visible publicly (about half of the meat) is what my clients are receiving. There are sections below where I refer to "more info for clients," and this simply means you are only seeing a portion of what I wrote. The balance is reserved for clients only. It is not meant to anger anyone, but if I don't provide my clients with added value, there is no reason to pay for my services. In addition to updates, trade alerts and model portfolios, my clients receive additional information and access to all conference calls at no charge. If you are interested in asset protection and asset growth as we move into the Greater Depression, I suggest you become a client . . . or at least try it for a month or two.

Short the Banks - We are short a number of banks, including Wachovia and Banc of America. Some people question why these two, but we've already been short many of the smaller banks that have tumbled 60-90%. WB and BOA have multiple mea culpas to come. I like other banks for short positions, but WB might just be my favorite. Over the past few weeks, as we see more and more clowns like Cramer call a bottom, the issues plaguing the big banks have been ignored. Here's a few things to remember.

Bob Steel, another Goldman Sachs frat boy, just took over at WB and he pompously purchased a million shares. Bob Steel can't fix WB, not even with his buddy Paulson pulling strings. Wachovia has Auction Rate Securities problems that they cannot hide. I love one of the Wachovia responses to a question about their ARS problem. A Wachovia spokesman said, "Many securities firms, including Wachovia, are responding to inquiries from regulators about the auction rate securities industry. The discussions that are occurring today are a part of this ongoing process." So, does that make it OK. Is it OK because everyone was doing it? Isn't that exactly why we are where we are at? Yes. And if you had to think more than three seconds, you deserve to follow Cramer off the cliff . . . except he's not going over the cliff. He's just making sure everyone else stampedes off the cliff.

Wachovia also has CDO and CDS exposure. How soon we forget that one bold hedge fund actually sued Wachovia on an allegedly fraudulent CDS contract. That one involved Citigroup as well. The really cool part about all of this for short traders, is that most of the banks still have no clue what they own, what it's worth or how much trouble they are in. Personally, I've got to think most of these big banks are broken and broke. As Greenspan said, it is not a liquidity problem, it is a solvency problem. B-I-N-G-O

We are short a number of other banks, and my trading clients are looking at tremendous opportunities trading puts on banks that you might think are safe . . . but are doomed to failure along with many of the smaller regionals that are failing. More on this and Golden West for clients . . .
Clients Only . . .

Short the Financials - We are short the financials, even Merrill and Goldman. But this discussion will remain reserved for clients only. I have to remind some of my clients of how to behave at the buffet. You don't short everything just because it is a bank, builder or financial. Do you load your plate with one of everything at the buffet? Of course not. You take the lobster, the prime rib, the caviar and the ice cream. Always take the ice cream. I have had clients call me, boasting about shorting Wells Fargo or Boston Properties and dozens of other companies that they think are fungible. Why risk Warren Buffet announcing he's going to take a larger stake in Wells Fargo, simply because he has $40B in cash sitting around? But there are other reasons we are avoiding Wells Fargo. The same holds true for Boston Properties. Yes, it's a REIT, but what kind of REIT? What are they doing differently? Who's the boss? Mort Zuckerman. Why fight a stand up guy like Zuckerman and a company like Boston Properties, when you can pick from a dozen others that are in far more trouble. I realize I got off track there, but I hope I made the point about not shorting all the financials or all the builders, etc. In my model portfolios, we only short the juicy stuff. More for clients . . .
Clients only. . .

Merrill Marks the Market - Finally, we have a firm bold enough to "attempt" to mark the market, not myth. Well . . . almost, because we are not really sure what they did or how or even exactly when. Merrill sold (maybe sold) CDOs with a nominal value of $30.6B to Lone Star funds. The deal closed, or should I say "mythically booked" at 22 cents on the dollar. Mythically Booked? Yes, because Merrill financed 75% of the purchase. It was a deal that has the Street so perplexed that Merrill will have to make an SEC filing to clear the air. Otherwise, John Thain is going to destroy the credibility he has worked so hard to build for 30 years.

Here's how crazy this deal is. We are not sure when it was done. Some say it was done June 27th, but kept back-pocket secret until this week. Why? With John Thain's silence on this and other Merrill issues, you've got to wonder if he got into something he is now finding a lot stinkier than he ever imagined. I for one think John Thain will exit Merrill as soon as he sees and open window. Then again, he's a Paulson frat boy from Goldman Sachs, so he might just be another plug in the dike like Bob Steel at Wachovia. If you put together a list of all of the Goldman Sachs boys and girls, that are at various levels of private business, public office and international office, you would not be able to comprehend the web they have knitted. So, the real question here is whether Paulson can hold it all together. Not a chance. Zip. Nada. Nope. No Way. And when it unravels, it is Humpty Dumpty.

My clients are short Merrill and have increased their short and put positions even after the deal was announced. More discussion for clients about the National Australia Bank issues and how this triggers other write downs . . .
Clients only. . .

Back to the Banks - I will reserve most of this for clients, but let me share a little of what I am seeing over the last few weeks. Make that 2-3 weeks. Fear is clearly in the air, along with desperation and a huge dose of stupidity. I often use the term banks, financials and lenders interchangeably. I'm not going to apologize for it, but I will try to explain it. Some of these players are involved in all three areas. Some are hybrids. BOA is a bank. It is a financial. It is a lender. And I am seeing the fear at all levels.

At the street level, we see more properties coming to market. As this unravels, the process grinds itself into dysfunction. Are there any smart banks left? Easy answer, but I am going to reserve that for my clients. I will share one more point with you. The dysfunction of the disposition of the foreclosure properties is just the tip of the iceberg. It is enough to sink the banks, but you must consider what banks do. They loan money. I have news for you, they are not loaning money, so as I have said for far too long, the problems simply feed on themselves now. If you are a butcher and you are not selling meat, you are not a butcher. If you are a bank and you are not loaning money, you are not a bank. You may think you are a butcher or a bank, but you're not.

Probes and Lawsuits - I think the word probe should be used a bit more physically on some of the financial wizards that concocted the Credit Default Swaps and Auction Rate Securities that are finally being "probed" by a few states and more seriously by New York Attorney General Andrew Cuomo. Read the news. It's not one institution. It's not one investigation. It's not a slap on the wrist. No need to repeat the news here, but for my trading clients, the institutions involved in this mess are prime targets for shorting and puts. Moreover, this takes a bit of research to see who boasted about these deals over the last few years. Because with that research, you'll understand who is going to be targeted. The lawsuits racing at the institutions from attorneys general . . . and very soon, coming to a theater near you, are some huge lawsuits from the private-sharks representing pension funds and other fiduciary accounts mismanaged by the fraternity boys and girls. Attorney General Cuomo has already made it quite clear that he is just getting started.

Housing Prices - Let me touch on this briefly. Prices are going to drop another 20-50% without a Depression. As we move into Depression, it will be an event we have never experienced at the scale we are entering. Much, much, much more info and color on housing prices and specific markets for clients, as this is critical to our decisions on the builders . . .
Clients only. . .

Builders - Without a doubt my favorite area and one I understand better than any analyst I have yet met. In fact, there is only one analyst left standing without egg on his face. Alex Barron, Senior Analyst with Agency Trading, is the only analyst that has dared to call it like it is. He stuck his neck out and took a lot of abuse along the way. As the builders slid along the roller coaster, tempers often flared from hedge funds and investors that thought I was a jackass. When the builders rallied early this year, things were bleak for the shorts. But nothing has changed, and most of the builders will be out of business or nothing more than a shell of what they are. For the hedge funds that stayed short, they reaped huge rewards. And for the idiots that stayed long, they were crushed, including Hotchkis.

Shorting the Builders - I apologize to general readers on the Internet, but I am going to reserve this for clients only. I often get emails and phone calls about what the analysts are writing about. A lot of that stuff floats around the Internet for free. If you think you can listen to the big girls, like Ivy Zelman, you should run a tape on her advice. You'd be a very UN-happy camper right now. And for those that remember me noting she was too close to Lennar??? If you listened to her with her $30 target, you'd be about 60% short of your target right now. The same holds true for any of the big boys still left in the game, with the exception of Alex Barron. In fact, he is the only analyst that can rightfully brag, his clients are all smiling broadly . . . if they listened to him.

It is only fair to my clients, that I reserve my builder thoughts for my clients. But I will share one more item with you publicly. In addition to not being able to rely on the analysts, you can't simply bag the builders with the ETF, unless you are okay with the fact that the XHB includes paint companies, furniture companies, carpet companies, Lowes, Home Depot, etc. I will agree, these also follow the builders down to some extent, but the XHB is not a pure play on the builders. Far, far from it. So if you want to go to the buffet and eat one of everything, XHB is for you. If you want to go to the buffet and enjoy the lobster and prime rib, there are builders to short and builders to ignore. Are there any builders to buy? That depends. More detail on builders below for clients . . .
Clients only. . .

A House for Everyone - Very quickly on this one. I was always afraid to use the word Depression, because it sounded crazy. Now it's reality. One thing that bugged me over the last year was the level of inventory and the NAR numbers. Nothing seemed to add up, but I kept this to myself. I believe we have more homes (apartments and single family) than we have people to live in them. Absorption rate is not a function of historical sales numbers. We are looking at a new dimension of absorption . . . and the builders are still building . . . because the banks are still lending . . . and then foreclosing . . . and the unsinkable Titanic eventually sank, even though the band kept playing.

Back to the Banks . . . Again - Actually, this is a side-step to FHA, but ties back to the banks. You see, the mortgage market right now is basically FHA and FHA and FAH. Sorry about that, I meant FHA, not FAH . . . because there is no one else left to make mortgages. Traditional banks can't make loans because they don't have any money to loan, and they are too busy foreclosing on millions of mortgages they have on the books that are sour. The few banks that are still issuing mortgages are few and far between. Moreover, the hoops the buyer must jump through are just about insurmountable. But there is still the lender of last resort, which is actually the lender of first and only resort . . . FHA. Keep reading if you are a client. If you're not a client, you're going to miss the meaty part of immediate negative equity and the FHA torpedo on steroids.
Clients only. . .

Asset Protection - It has become next to impossible to open a "reliable" Swiss bank account to hold foreign currency or gold. Even the banks we were working with have refused to discuss new accounts from the United States. There are some opportunities available for hard asset protection. We will be sharing this with clients. For now, we are concentrating on increasing our dollars as the market crumbles, but will eventually need to place the dollars in alternative assets. If you are considering a foreign account, my advice is to be very careful. There will be tremendous scams in this arena. Remember . . . the mortgage and financial guys are all out there looking for the next easy mark.

Pawning for Potatoes - I have a few clients and readers are in the pawn shop and/or jewelry business. There emails are great - Behind Enemy Lines - information. Let me share a few with you, because people are now selling what's left just to put a meal on the table:

1 - 3/4 kt round diamond ring, vs1, color G, 14kt gold setting with 8 diamonds.....lady needed $200 because her water got shut off

2 - I had a guy come in with his wife. She was crying because they were selling her engagement ring. It was all they had left. He walked out crying and I wanted to shut the shop down for the day. Its getting gut wrenching.

3 - The BMW 7 Series people are showing up with goods.

4 - Today a financial planner with sterling candlesticks. This is crazy.

5 - This week we had our busiest week in the history of our company. All three locations. My cousin in California has six shops and he has doubled the size of his staff since the first of the year. Where does it end.

6 - The people coming in lately are not what we saw a year ago. I have to say more than half of my business is white collar and when you consider dollar value it is 80% or more. You have been right on the money Mike.

7 - July was a record month and a very tough month emotionally. I have been doing this for 30 years. I never seen so many people coming in just to pay for food. What do they do next?

Bye Bye Benigans - Cracker Barrel Next? - There are two points to this treat. Yes, it is a treat for those of us short the REITs. Benigans filed Chapter 7 this week, which means they shut the doors and walked away. That means 150 company owned store vacancies for REITs and similar owners throughout the country, with the potential of 138 additional vacancies when the franchisees shut down. While Benigans is not that big a hit to the REITs, the future of Linens ‘n Things 600 stores is still up in the air with their Chapter 11 filing. I'm betting on Linens ‘n
Things not making it. It is poorly run through Leon Black's Apollo Global Management. Our field research tells us the winner is Bed Bath and Beyond, and Linens ‘n Things closes the doors once GE and other creditors put the squeeze on Black's huge miss with Linens ‘n Things. Unfortunately, there is no way to play the Linens ‘n Things failure against the success of Bed Bath and Beyond, as we did with Office Depot and Staples.

Speaking of successful paired trades, this was the best. Moreover, we believe Office Depot will be closing stores this coming quarter but there is a wild card that keeps us on the sidelines. More for clients below. . . .
Clients only. . .

As usual, I got off track again. The Cracker Barrel discussion will be reserved for clients below. I am making a trading call on Cracker Barrel. I am not meaning to offend any public readers, but I must provide my clients with value above what they can also read for free on the Internet.
Clients Only - Cracker Barrel . . .

Supermarkets Hurting Too - This was by far my favorite field research. Whenever ice cream is involved, it is good. The other day the GreenPaulKenites (GPKs) really had me down, so I decided I needed an ice cream fix. As I was checking out in the supermarket, with several pints of Hagen Daz, the gal packing my treats made a comment about her vacation next week. She sounded about as down as I felt, so I said, "I sure could use a vacation." Her response was, "Not me. I'm broke." My brain kicked into field research mode and I started asking her a few questions. There was no one in back of me, so I took my time and the young lady checking me out also chimed in. Here's the scoop. Seems like this unnamed supermarket chain is forcing employees to take vacations. As the ladies eloquently put it, they were being laid off. Why? Business is off. Did you hear that? Business is off in a supermarket selling food and water!
That started me thinking so I took it to another level, considering the effects of gas prices and combining trips to the supermarket, as well as what was going on at BJs, Sam's, Costco and Wal-Mart. If you're a client, you will be surprised. If you are not a client, try the Hagen Daz Toasted Coconut Sesame Brittle. It will truly make your day. More for clients below . . .

Clients only - Big Box - Big Bets . . .

Mervyn's Moving Out - Maybe? Most likely, yes. But for now they're going to do the drag it routine so the boys at the top can keep sucking out the dollars. Mervyn's filed Chapter 11 this week with 176 stores. And that's just the beginning for the retail sector. The big opportunities here are shorting specific retailers, shorting very specific REITs and even considering some paired trades for best of breed and worst of breed. Nah, strike that. It's all going lower.

Retailers v. REITs - I've written about the commercial sector of the housing crisis, as well as REITs. What is most interesting here, are the dividends. We get a double bang here. Some of the REITs are in huge trouble because of overbuilding and now a soft retail sector that is getting downright mushy. I say some of the REITs because this is the best example of being careful not to short the entire sector. There are some REITs that are going to outperform other REITs and the market. There are some REITs that may be in position to benefit from what is unraveling. So here is a sector that ground zero, field research is critical. Here are a few that we are shorting CLB, DDR, KIM and WRI. The other bang from the REITs is their dividends. One of the reasons they have held up, are the dividends. But just like we saw with the banks and the builders, once the dividends go, it will be another round of haircuts. For the REITs it is important to stay focused on those with exposure to strip, smaller regional malls and some of big box mix. This is an interesting group that is a must-short in any crisis investing portfolio, with more info for clients.
Clients only - Short These REITs . . . but

And to close out just why our favorite REITs in our portfolio and the new ones referenced above are so, so hot as shorts, here is a list of retail closures effecting REITs:

Ann Taylor closing 117 stores Eddie Bauer to close more stores Cache - closing 20 to 23 stores this year
Lane Bryant, Fashion Bug, Catherines closing 150 stores
Gap Inc. closing 85 stores
Foot Locker to close 140 stores
Zales, Piercing Pagoda plans to close 105 stores
Home Depot closing 15 stores
Macy's - 9 stores closed
Movie Gallery - plans to close 400 stores
Hollywood Video closed 500+ locations
Pacific Sunwear - 153 Demo stores closing
Pep Boys - 33 stores of auto parts supplier closing
Sprint Nextel - 125 retail locations
Wilsons the Leather Experts - closing 158 stores
Bombay Company - closing all 384 stores
KB Toys closing 356 stores
Dillard's Inc. will close another six stores this year.

Glossary of GreenPaulKe Speak - It has become obvious that we need a definitive glossary for so many of the new coined financial terms that are taking on new meaning in a world of three-card Monte and shell games at the highest levels of banking. Here are just a few. And these are all actual terms that have been used by the "experts" and talking heads over the past week.

Aspirational Value - This is one of the most common. It's basically synonymous with Mythical Value or my favorite . . . Optative Value from the Greek form wishful thinking. And if you dig a little further look at Optative v. Opium and the effects of the latter. Ah, ha . . . yes, now maybe you are starting to put it all together. This may sound like tongue-in-cheek to you, but it is not. This is real stuff that you will hear everyday from GPKs.

Risk Absorption - I heard this one from a talking head yakking about how we will know we are at the bottom or when we are getting close. He seemed to throw around "risk absorption" as a catch-all for when we have absorbed all the risk we will be coming out of the rubble. But he was speaking GreenPaulKe when he was quizzed on how the risk was going to be absorbed. And that is exactly the point for moving into a Depression. The money is gone. There is not risk left. The horse has left the barn . . . died . . . and is now pushing up beautiful flowers for the guys that killed the horse (Paulson and Pals, The GSC, The Fraternity Boys).

Visibility of Value - Oh yes, yes, yes. This one is very special. You will only hear this from the most advanced GreenPaulKenites. You see, the value is there, but the visibility is different for the general public (suckers) and the GPKs. The GPKs see value where we can't. They see value in banks and financial institutions, even though these institutions are leveraged at 30:1 and their assets have declined by double digit percentages. The trick is for the GPKs to convince sovereign wealth funds and pension funds that they must learn to trust the GPKs regarding their VOV . . . visibility of value. Got it? Call me if you don't, because this is critical to recapitalization. You see you need VOV to be able to capitalize. Without VOV, there is no reason to recapitalize, because there is nothing to recapitalize. I want you all to realize, I am having fun with this, but I am also make very serious points. And once again, I remind you, these are terms the talking heads used just this past week.

One Picture Says It All - The following chart is from the Economic Research Department of the St. Louis Federal Reserve Bank. The chart illustrates how much money banks have borrowed from the Fed since 1910. That's all I have to say about that . . .

Mike Morgan, J.D., RIA
Blog - www.888Mike.com

Website - www.MorganFlorida.org

Cell - 772-260-5448

Mike@MorganFlorida.org

FDIC Failure Fridays - Another Bank Failure

Mike Morgan, J.D., RIA, CRS, GRI — Fri, 01 Aug 2008 18:38:58 -0500

Last week I stated that we would come to know Friday afternoons as FDIC Friday Failures. Well, I hate to say I told you so. Strike that, I actually like to say I told you so . . .

Today after the markets closed the FDIC seized and shut do First Priority Bank, Bradenton, FL. More info for clients and more discussion about bank and broker failures will be offered on the Conference Call on Thursday. We will also discuss counter party risk and "failures", as well as the next shoe to kick the market in the teeth . . . the return of CDOs and ARSs . . . on steroids.

I made a statement this week after Greenspan spoke. I said, sell the kids and short the markets. I took a lot of heat for that . . . as usual. But even though First Priority of Bradenton is a small bank, this is just the very, very, very, very, tip of the ice berg. More like an ice cube in the backyard pool, as we seem to have not even mentioned last week's two bank failures this week. We will see Friday Failures with 10 and 20 banks in one shot . . . before the end of this year. I can assure you of that, simply from what I am seeing and hearing on the ground, as well as what I am noticing in my residential business. And as Forrest would say . . . that's all I have to say about that. More detail and color for clients.

Enjoy the weekend. Let's see how long the markets can ignore the bank failures.

Mike

My Financial Blog - www.888Mike.com

Institutional Website - www.MorganFlorida.org

Three Stooges Confirmation of Market Crash

Mike Morgan, J.D., RIA, CRS, GRI — Thu, 31 Jul 2008 14:56:35 -0500

Let me give you the three things that happened today which guarantee a market collapse that will renew itself over the next few days:

1 - Jim Cramer called the Absolute Bottom and he pulled out the Bear Slicer.

2 - British Hedge Fund Increases Stake in Washington Mutual - that's truly bad money chasing already dead money. And it was interesting that this was initially announced as an investment, when it was nothing more than adding to their mistake, which triggered a regulatory announcement.

3 - Alan Greenspan is back on TV today telling finally admitting the truth. He has finally flip-flopped and now he says it is not a liquidity problem. I've said that for two years now . . . it is a solvency problem. He stated we are nowhere near the bottom in housing, but then he started talking GobilyGook. It was truly a pukable performance.

Sell the kids and short the market. We will be below 9000 before we ever see 12000 again. After hearing Greenspan's opening comments, I can't understand why the market is not down 500 points. He summed it up perfectly . . . this is a Solvency Problem.

TONIGHT - We are having a client meeting here in Jensen Beach at 7pm this evening.

NEXT WEEK - Conference Call on August 7th. You are not going to want to miss it.

UPDATES AND BLOG - If you are not a client, you have probably realized you are not seeing much in the way of Quick Notes, Blog Posts or Trade Alerts. I've tried to provide my clients with the value they are paying for, so I have held back most of what I have written and all of the alerts. If you are interested in becoming a client, you can purchase a one month trial that will include:

1 - Next Week's Conference Call
2 - Both of July's Conference Call Replays including the 3.5 hour call
3 - All Trade Alerts and Portfolios
4 - Ten Minutes of my time
5 - All of July's Client Emails and Alerts

BLOG - www.888Mike.com

Website - www.MorganFlorida.org

Hard Core Depression Warnings from 1998

Mike Morgan, J.D., RIA, CRS, GRI — Mon, 28 Jul 2008 06:16:29 -0500

Hard Core Depression Warnings from 1998
There are many things I could write about today. But if you need another article of mine to bring you to your senses, your senses are too dull for words. You need to watch the video in the link below. You need to see and hear what I've been writing about. You need to get a grasp on reality and start protecting your assets NOW. Because if you still think we can avoid a Depression, you are going to be one of the suckers standing in a bread line . . . or worse.

1998 Warnings - By the way, the video you are going to watch, is from 1998. I found it hard to believe folks were talking about these things in 1998. I can't confirm that date, but if it was done in 1998, that makes it much more scarier. I do know Larry Burkett died in 2003, so it is at least five years old. And the video's reference to a total debt of $19T makes sense for 1998. The video covers all bases . . . from housing to employment to borrowing to financial creativity to the government shell game with our money, as well as the truth about the Federal Reserve's printing machines and all that we have just witnessed.

Two Hours of Hard Core Truth - It's a two hour video. You might say, "I don't have two hours." Fine, my clients need losers on the other sides of our short trades. If you don't have two hours, you might want to watch the first ten minutes. That's all you need. Then again, if you only watch the first ten minutes, you confirm the point of the contents of the video. Most people just don't care. Most people still believe all is well, and they can use their credit cards for another fancy dinner out or $500 for a day at Disney with the family or a jet ski or another car or another boat or whatever they think they "need."

Greed and Morals - The only problem with the video, was if it was done in 1998, people that followed its advice would have lost fortunes by now. However, that was only because the experts in the video actually "underestimated" just how unscrupulous our economists and politicians could be. These experts also underestimated the greed and lack of morals in their neighbors . . . you, me and everyone else. So I suggest you watch the video, and make your own decision based on what we are seeing unfold now. Remember, four years ago I started talking about problems. Three years ago I started writing about them publicly. A year ago I coined the term Decession. This year it has become clear we have are facing a Depression attributable to physical debt combined with moral debt.

Video Link - http://wealthbygold.com/content/view/27/46/?mikemorgan

Crisis Investing - When you're ready to start a Crisis Investing Portfolio and joining a group that is going to continue to discuss asset protection, visit my website www.Morgan-Florida.org By the way, this Thursday we are holding our first meeting in Stuart, Florida at 7pm. If you are interested in replays of our two public Conference Calls - http://www.morgan-florida.org/07-18-08

Local Conference/Q&A - Martin County

Mike Morgan, J.D., RIA, CRS, GRI — Sun, 27 Jul 2008 13:12:20 -0500

Hello Everyone - This information was an open email to my friends locally and those on my Quick Notes email list. I encourage you to forward this to any of your friends that have similar concerns.

A lot of people have been stopping me at restaurants, in church and when I am out and about. On Friday, two more banks were shut down by the FDIC. With three bank failures in just the last few weeks, everyone wants to know what's going to happen next. Let's face it, when I spoke about a Decession last year . . . a word that I coined for something far worse than a Recession, everyone called me a nut-case. So when I started speaking about Depression in January, guys showed up at my office in white jackets. I guess now, people are starting to wonder. Unfortunately, I do not have enough time in the day to speak to you all individually, and since all of you have the same basic questions about the economy, your personal investments, IRAs, 401Ks and mutual funds . . . and how to protect what you have, I have decided to offer some of my time this week.

People are looking at their IRAs and 401Ks, realizing they $400,000 a year ago and $100,000 is missing. It is not missing. Stocks have fallen, and some banks, builders and other stocks have fallen by 90%. Those are Great Depression type numbers. Let me guarantee you this. If you stay in stocks, you will have further HUGE declines.

I am going to hold a conference/meeting here locally in Stuart or Jensen Beach on Thursday. I will spend up to three hours explaining what is happening to our economy, the banks, stock markets, financial markets and global markets . . . and what you can expect. I will answer any questions you have. The meeting will start at 7:00pm. I am not sure where I will hold it. That will depend upon how many people want to attend. I will have pizza and soda for everyone, so if dinner is a problem, there will be food. There will be NO charge for my time.

This will be RSVP only. I need to know by Tuesday evening, how many people want to attend, so I can reserve a room or a restaurant.

You can respond via email or you can call me 772-260-5448. Feel free to invite anyone you want, as long as I know how many people will show up. Please no children. This is a serious time for everyone, and I am going to address a lot of questions and answers.

NEXT CONFERENCE CALL - Pure Questions & Answers - I will hold another conference call on Thursday evening (August 7th) at 9:30 p.m. EDST. It will last 2.5 hours. I will have to cut it off then. The last call went 3.5 hours, and it was really pushing it for everyone. This call will be open to the general public and I will address all questions, but I will NOT get into specifics about stocks. Mutual funds and hedge funds don't get into that. In fact, they only give you a one month performance report. I offer a variety of levels of service. So if you want the details and you want on-on-on investment advice, I offer that. Hedge funds, mutual funds and 99% of the other Investment Advisers don't do that because they can't make the piles of money they make by ripping off the general public. I invest my client's money as if it were my own. I invest in groups, sectors or best of breed. If you are looking for a dart board pro . . . . try Cramer or any of the other guys that put out rear-view mirror newsletters and stock picks. This is not a horse track folks. I'm doing the next call at 9:30 so my clients on both coasts can participate, as well as my clients in Australia and Southeast Asia. If you would like a Saturday or Sunday call, please let me know. This call will be moderated and OPEN to questions from anyone on the call. If you are on the shy side, and do not want to ask a live question, you can email your question before or during the call. Instead of me speaking for an hour in the beginning, the call will be pure questions from callers. Even though we went till 1:00 am last night, we did not get all the questions answered. I will discuss individual stocks, but I will not tell you whether they are in our portfolios and I will not give you details that I have learned from "Behind Enemy Lines." That level of information is reserved for clients and the "client only conference call." If you are interested in this conference call, you may purchase an access code here - http://www.morgan-florida.org/07-18-08

Two More Banks Seized by FDIC

Mike Morgan, J.D., RIA, CRS, GRI — Sat, 26 Jul 2008 08:03:51 -0500

It looks like it is starting, and we are going to be seeing Failure Fridays on a regular basis. Two more banks were seized by the FDIC later Friday. The story is below. As I have noted all along, this is going to speed up, and I expect 100+ failures by the end of the year, and now I am calling for more than 1000 bank failures over the next two years. If things continue to deteriorate, that number could double. (More Detailed Information and investment strategies for my clients about this and other developments from last night and the weekend)

CRISIS INVESTING - I know I sound like a broken record, but if you are not prepared for what is unraveling, you will be in dire financial straits. There is no way for the Fed to fix this mess, and what the Fed did over the past two weeks was nothing more than to line the pockets of Paulson's frat buddies. I highly recommend you listen to the 3.5 hours Conference Call we held on July 17th. Conference Call Replay information is available at http://www.morgan-florida.org/07-18-08

My Blog - Mike Morgan Behind Enemy Lines is at www.888Mike.com

FDIC takes over 2 more banks, closing 28 branches
By BRENDAN RILEY
CARSON CITY, Nev. (Associated Press) - The 28 branches of 1st National Bank of Nevada and First Heritage Bank, operating in Nevada, Arizona and California, were closed Friday by federal regulators.
The banks, owned by Scottsdale, Ariz.-based First National Bank Holding Co., were scheduled to reopen on Monday as Mutual of Omaha Bank branches, the Federal Deposit Insurance Corp. said.

The FDIC said the takeover of the failed banks was the least costly resolution and all depositors - including those with funds in excess of FDIC insurance limits - will switch to Mutual of Omaha with "the full amount of their deposits."

The FDIC also said accountholders can access their funds during the weekend by writing checks or using ATM or debit cards. As of June 30, the closed banks had total assets of $3.6 billion. That's down from $4.1 billion six months earlier. Most of the assets are in 1st National while First Heritage accounts for $254 million.
Calls to 1st National were referred by a receptionist to Joe Martony, an executive vice president in Scottsdale, Ariz. Martony didn't return repeated calls to his office. In Nevada, 1st National has 10 branches and employs about 350 people. Five of its branches are in Las Vegas, three are in the Reno-Sparks area, one is in Carson City and one is in Laughlin. Notices of the closure were being posted late Friday. Fifteen 1st National branches are in Arizona, while Newport Beach-based First Heritage has three branches in Southern California.
Bill Uffelman of the Nevada Bankers Association said Friday the FDIC action "is a reflection of the times for the banks. It's a poor economy." Uffelman cautioned against the sort of consumer concern that prompted many customers of IndyMac Bank branches to wait for hours in line to withdraw funds across Southern California last week after that bank was seized by federal regulators. All FDIC-insured bank deposits are guaranteed by the FDIC up to $100,000, he noted.
Gov. Jim Gibbons said the bank takeover will be closely monitored in Nevada "to ensure there's minimal disruption to business and that employees' jobs are protected as much as possible."
Arizona Gov. Janet Napolitano spokeswoman Shilo Mitchell said in a statement that the FDIC's takeover of 1st National is not indicative of the overall banking climate in Arizona. "It's very important that Arizonans know that their deposits are secure," said Felecia Rotellini, superintendent of Arizona Department of Financial Institutions. "They are well-managed and the 1st National Bank of Arizona issues should not cause any panic in Arizona."

A Peek at Mike Mogan's Client Quick Notes

Mike Morgan, J.D., RIA, CRS, GRI — Sat, 26 Jul 2008 06:41:59 -0500

Quick Notes Alert - Just a Peek
Here is a quick peak at a Client Only Quick Notes Alert that went out this morning. Some days my clients get one and some days two, three or more throughout the day.

Hello Everyone:

Very interesting developments overnight. Two of the biggies:

1 - National Australia Bank has taken a huge CDO write down. This will reverberate through the financial world. It will get everyone thinking about . . . (more for clients)

2 - The SEC has been leaking out little tidbits overnight about their plans to overhaul the entire shorting system here in the US . . . . I(more for clients) f it is extended beyond the 19 stocks or if new rules apply to all stocks, this will absolutely destroy the financial markets . . . . (more for clients) big boys will be battling each other. . . . It's a lose - lose for America and a win - win for the Paulson's buddies.

The politicians know what's going on. Just look at what President Bush said last week, when he though the microphones were off . . . President Bush: "Wall Street got drunk" - http://www.youtube.com/watch?v=z_FDRjluLJQ

If you have friends that are not Crisis Investing now, you need to talk to them. At the very least, they need to sell all of their stocks and mutual funds.

TRADERS: We had a fantastic day yesterday. . . . (more for clients) start thinking about futures until around 8ish in the morning. We will be looking at adding additional . . . . (more for clients) providing the SEC does not do something really stupid. If they do, we go to cash ASAP and wait till things settle down.

BASIC ACCOUNTS: I would still be adding to positions. I like all of the positions we have listed. . . . (more for clients)

CNBC: If you watch Kudlow at all, this man is dangerous. He is far more dangerous than anyone else that is on TV or writes anything. This man is truly a devil's assistant. It is pukable to listen to him and he has destroyed many lives with his Buy-Buy-Buy and his Goldilocks comments. If you are mesmerized by this loud mouth, you need to turn off the TV, and go see an exorcist ASAP.

TRADE ALERTS: (for retainer trading clients only)

WARNING: If you are not Crisis Investing yet, you need to sell all of your stocks and mutual funds and start looking at some of the investment and protection things we are doing.

My Blog - www.888Mike.com

Institutional Website - www.Morgan-Florida.org

Crisis Investing - Information and Assistance

Mike Morgan, J.D., RIA, CRS, GRI — Sat, 26 Jul 2008 06:39:36 -0500

My Apologies

Once again, I must apologize to everyone that is posting comments, sending emails and leaving voice mails. I simply do not have the time to respond to everyone. I wish I could, but with what is going on in the markets, I am just about running 20 hours a day. I get a breather from 6-7 in the afternoon before Australia and the Far East start trading, and then another little nap before Europe. It is round the clock right now with the level of information flooding in and the level of trading for a variety of clients around the globe.

I must dedicate my time to my clients. With that said, this month I offered plans for the little guy, and I also offer some 20 minute blocks of my time at very low rates, but that is the best I can do.

3.5 Hour Replay - If you don't want to purchase some of my time, I suggest you at least listen to the 3.5 hour conference call I held on July 17th. That alone will give you enough to keep you thinking, get you thinking and get you moving in the right direction. You can purchase the download for that call and the following one using this link - http://www.morgan-florida.org/07-18-08 - ALL replay profits go to local groups for homeless and children.

Next Conference Call - August 7th . . . and I have extended the discounted sign up rate. - http://www.morgan-florida.org/07-18-08 ALL conference call profits will go to local groups for homeless and children.

Mike's Blog - www.888Mike.com

Institutional Website - www.Morgan-Florida.org

Martin County Update - July 23, 2008

Mike Morgan, J.D., RIA, CRS, GRI — Wed, 23 Jul 2008 14:07:00 -0500

Two pieces of interest for anyone interested in Martin County, Florida . . . one of the best places in the world to live, work and play.

1 - Martin County to get a solar energy project, and it will be the largest outside of California. Florida Power & Light received preliminary approval from the State of Florida last week.

2 - Martin County Commissioners are moving forward to position the county to take advantage of the biotech growth in St. Lucie and Palm Beach Counties. The Commissioners, along with commissioners from Jupter Island and Sewall's Point and the Martin County School Board will be joining the Martin County Consortium for Life Science Research and Technology Advancement.

For additional information, please email me: Mike@MorganFlorida.org

Consumer Website - www.Treasure-Coast.us

Institutional Website - www.Morgan-Florida.org

The Back Half of the 500 Year Hurricane - Gets Worse

Mike Morgan, J.D., RIA, CRS, GRI — Wed, 23 Jul 2008 13:56:06 -0500

11:40am - July 23 - In 2006 I wrote about the "Housing Hurricane" in Barrons. In April of this year Barrons published my piece titled "The Eye of the Housing Hurricane." You can read both pieces at www.Morgan-Florida.org Today we are in the back half of what has just grown from a 100 year hurricane to a 500 year hurricane, and we still have yet to realize just how devastating this hurricane is and will yet be. Is there anything new to write about? It depends. If you are a client, this is old news. If you still believe the worst is over, read on.

- Million Dollar Plus Homes
- Short Term Memory? - Credit Default Swaps
- Subprime v. Credit Default Swaps
- More Memory Loss - Auction Rate Securities
- Paulson's Fraternity Bros
- Consumer Debt Exploding
- (F x 4)/ H + I(3) = Not a Happy Ending
- LENDER COLLAPSE
- Housing Bill Bail-Out
- Armageddon

Million Dollar Plus Homes - Here's something you haven't read about. For the past two weeks I had two of the most interesting residential clients I have ever worked with. This was a husband and wife team that is involved in international investing at a level very few people are exposed to. They were here shopping for a vacation home, purchasing 60 hours of my time in a block. As many of you know, when I do work with a residential buyer, I only do so with clients that retain my time, just like the financial institutions I work with when they retain me for research projects. For my residential clients, when they do close on a home, whatever commission the seller pays me, is turned over to my client. So on a two million dollar home with a $50,000 commission, even if my client purchased $30,000 worth of my time, my client still comes out ahead of the game.

But that is not what I want to write about this morning. I am explaining this process, so you will understand just how serious my clients are. I don't work with "lookers" unless they are prepared to shell out a minimum of $7,500 for 30 hours. So when I spend 60 hours with buyers looking at homes, they are real buyers . . . or they are sharp enough to gather information to make an intelligent decision about buying or renting. And that is exactly what happened here.
After two weeks of looking at homes in the $1.5 to $3M range, my clients decided NOT to purchase a vacation home, but instead to rent this coming season, and wait for prices to come down further. Very smart decision from the sharpest buyers I have worked with in several years. Here's what's interesting.

You've read so much about subprime and foreclosures and the general malaise facing the heart of American home ownership. But you have not read much about what is happening in the very high end markets. It is this part of my work that my Wall Street clients want to hear about. They want to know what I see on the ground with residential clients. They want to know what I see when I am out with analysts or hedgies researching commercial space. And what I saw during this two week field trip was an eye opener for me and my clients.

Second, Third and Fourth Homes - The market that we were looking at consists of homes that start at $1.5M and run all the way up to $10M. In the communities we toured, these are second, third and fourth homes for many people. Two years ago, there were a handful of these homes on the resale market. Today, the numbers of these homes on the market is staggering. Why? A little research into who the sellers are, spells a picture we have yet to grasp as a nation. Many of the sellers are financial executives that have lost their jobs. Some sellers are high net worth individuals that have purchased several of these homes to flip when the average Joe was buying condos in Miami or single family homes in Cape Coral. And some of the sellers are people that have simply overextended the good life to the point of breaking. Overall, it is the same story we hear at the lower end . . . just a different flavor.

The only difference between this market and the lower end, is the number of foreclosures and short sales. Oh . . . but wait. This is a very stubborn market. These are people that still believe the value of their homes can't go down 20, 30, 40, 50%. So a solid one half of these puffed up sellers are priced in the stratosphere. The folks, for the most part, will resist reality, because they are so out of touch with reality. And here's the catch. Even the sellers priced below the "market" are not getting bids. Once again, we have more homes than we have people to live in them. Moreover, when it comes to the level of home, the supply is even more staggering by percentages.

My clients decided not to buy right now, because they believe the global markets have not finished punishing those that are sucking on helium balloons and sipping the Kool-Aid being served up by Bob Toll, Cramer, Paulson, Bernanke, Roubini et al. So my clients will rent this season, and come back after a market crash forces these puffed up sellers to face reality. The lenders will have a new group of short sales and foreclosures to deal with, but with this group they will have their hands full of gooey stuff. We are not seeing it yet, but all the signs are on the wall. It is only a matter of time before this market gives lenders a new migraine. These owners have huge egos and jumbo sized arrogance. Unfortunately, that's not enough to keep their homes from falling in price, and even these wealthy individuals will eventually throw in the towel when they see just how expensive it is to carry these homes.

Short Term Memory? - Credit Default Swaps - Remember these? How soon we forget. Well, let Captain Mike poke you in the eye. Back in the first quarter of this year, these were all the rage as the next crisis to crush the markets. Some estimates put this market as large as $40 trillion, which is more than double the size of the entire U.S. stock market. A CDS is, or was, or is . . . insurance on securities like bonds and mortgage securities. Here's the catch. This market is not regulated. That should not come as a surprise. Moreover, this market was created by banks and hedge funds . . . stellar performers in the opera we are painfully living through. Allow me to continue. It gets better.

Credit Default Swaps are traded (swapped) from investor to investor (read: sucker to sucker). The protectors of our financial markets created Credit Default Swaps as another means to make money from nothing. Kinda like the Dire Straits lyrics . . . Get your money for nothing and the chicks are free. Don't laugh. Remember the folks I wrote about a few seconds ago with the second, third and fourth vacation homes? Many of them lived and will die by the Dire Straits lyrics. And how appropriate is the name of the band? Okay, back to CDS.

We haven't heard much about the CDS market since March. It didn't go away. It just reached the point where the banks have no clue what they own or what its worth. You've heard that before from me. That is the mantra I started hearing from my European bankers almost two years ago. Remember when I told you these guys were telling me the liquidity crisis was not a liquidity crisis, but a . . . Duhhhhhh Crisis, because these guys admitted they had no clue what they owned, and even when they figured it out, they had no clue what it was worth. And that has not changed much since then!

The top commercial banks hold more than a trillion dollars in swaps. But here's the catch . . . they are on both sides. I kid you not. This is a true story. Honest. Sometimes they were the screwer (insurer) and sometimes they were the screwee (insured). And from what I hear in the field, some of these clowns are on both sides of the same freakin' trade! By the way, two of the top five players in this market are BOA and Wachovia . . . two of the rising stars this past week.
Subprime v. Credit Default Swaps - No comparison. Subprime is a baby compared to the ramifications of the CDS market when it starts to unravel. And I love it when we keep hearing over and over and over about how we should not be comparing this market to 1929 . . . because we have more safeguards now. What? Huh? What safeguards? Greenspand did away with all of that nonsense. By the way, where is Greenspan lately.

Unfortunately, there are NO safeguards in place when it comes to the Credit Default Swaps market. None. Nada. Zipity Doo Dah.

More Memory Loss - Auction Rate Securities - Here's another area lost in the fog of deception. Or maybe it was just Bob Toll passing out enough Kool-Aid to fog over the memories of entire segments of the financial world after doing such a great fog-job in the home builder sector. But MadDog Morgan is here to bite you in the ass, just to make sure you don't forget about this one either. Auction Rate Securities were developed by none other than Goldman Sachs back in the 80's. I'd love to see a history of what's come out of Goldman Sachs over the years in terms of creative financing and guys like Paulson who reaped the rewards . . . and now want to tell us how to clean up the mess they created. By the way, don't you find it just a little funny that Goldman exec Kindrick Wilson is taking a leave of absence to go to Washington to "help" Paulson? Oh, and the new CEO of Wachovia, Robert Steel . . . you guessed it. He's another Golman/Paulson fraternity brother. C'est la vie . . .and we sit back and watch.

So Goldman Sachs created Auction Rate Securities as a means to . . . . . . . . well, they want you to believe it was a new form of liquidity for the markets, but if you look at it real hard, it was nothing more than a shortcut to disaster and huge fees for companies like Goldman Sachs. The problem with all of this liquidity we created, is that it was constantly being moved, just like the pea under the shell or the three-card Monte scam. For those of us that have been taken in by the shell game, you know there is no pea . . . and you can't beat the Monte scam. Well, that's the same thing we are seeing today in our financial markets. We've carved off so many pieces from the side of beef, that there is no beef in the game. Guys like Paulson, Rubin, Mozilla, and other have the beef socked away in their private meat lockers.

Okay, so I am straying again. But it has been awhile since I produced anything for the public, so allow me the luxury.

ARS in a nutshell was a way to trade long term debt like donuts. Strike that. I meant, like Miami condos. No, no. Strike that too. I really meant, like Credit Default Swaps. Naaaah. I'm just teasing to make a point. A point that only Senator Bunning seems to understand, but guys like Barnie Fife (Frank) turned on Bunning as if Bunning were the enemy. That's another story, so if you have no clue what I am talking about, Google Senator Bunning.

Back to Auction Rate Securities. They were created so long term debt could be traded like short term debt . . . with huge fees and expenses going to companies like Goldman Sachs for the privilege of playing the shell game. Other than the skimming that went on, the ARS has demonstrated that liquidity is totally controlled by the creators of the game . . . just like the guys on the streets of New York with the shell game and three-card Monte. When they want to play, they are taking your dollars. When you figure it out, they pack up shop and leave. Ah, hah. I think I just summed it all up in a neat and tidy package for you.

In February of this year, the Auction Rate Securities market failed, seized up . . . so the street boys packed up their shells and ran. The biggest players in this market declined to step in and support the market! When "investors" declined to bid on the securities the broker-dealers ran for cover . . . rates spiked and assets were frozen.

Oh, by the way, one of this week's financial stars is at the current heart of this investigation. Last week state regulators showed up at Wachovia to demand the documents they have been trying to obtain for several months. But it doesn't stop there. It gets worse folks.

Consumer Debt Exploding - Maybe Captain Mike needs to keep poking folks in the eyes, even though American Express did a pretty good job of that the other day. To understand who gets hurt on consumer debt, you need to understand the difference between American Express and Master Card and Visa. The latter two make money on fees. They do NOT lend money, so they don't care how much debt the consumer builds up. The more debt, the more fees. On the other hand American Express actually earns fees AND they take on the debt when card holders cannot pay off their monthly balance. For Master Card and Visa, their cardholders are racking up debt with our nation's banks. Yup, the banks again. Start adding it up and you will soon understand why my banker buddies keep telling me they have no clue how bad it is . . . but they know it is really, really bad . . . and it is getting worse. I don't need to see the statistics and the numbers and all of the keen stuff the analysts use to make their rear-view mirror calls. When my banking clients tell me they are in trouble and things are getting worse . . . and when I see consumers that have tapped out the housing ATM who are now juggling credit cards, I've seen and heard all I need to know.

Housing Bill Bail-Out - Bail Out what? How can you bail out two industries that are destroying themselves. I simply don't understand how the American public can be expected to bail out the banks and builders, along with the junkies that bought houses like they bought stock options. It;s interesting how the White House called the Housing Bill exactly what it was (a dud), and now is backing it. Paulson has the power. He's not looking out for our best interests, but for the best interests of his fraternity bros. And here's something to chew on. As credit card debt continues to explode, and people use credit cards like they used their homes to rack up debt, is Paulson going to bail-out credit card debt as well? Not likely.

(F x 4)/ H + I(3) = Not a Happy Ending - I haven't discussed some of my formulas for several months. And when I see all of the stuff coming out from Roubini and other prophets of economic wisdom, I feel a little left out. I've written extensively about my SSI Index, and my GOOBer Index, and my TTFN (Ta Ta For Now) Index, and some of my exclusively private formulas and indexes which have accurately predicted the level and intensity of the hurricane we are in. But I haven't shared Happy Ending with you, simply because it is NOT a Happy Ending, and I didn't want to burst the bubble of the folks still drinking the Kool-Aid. But the time has come to burst your bubble.

There are four "Fs" including fraud, fantasy, fiction and foreclosure. The first three are the foundation for the fourth "F." Enough said. We take this and divide by H + I, which represents Hype and Incompetence. Okay, so you don't need a discussion about the four "F's" or the Hype. But let me share a bit about just how severe the "I" factor is of total, absolute, and beyond any belief . . . Incompetence.

LENDER COLLAPSE - Over the last two weeks I have noticed a decisive shift in how lenders are handling foreclosed properties (REOs), or maybe I should say mishandling. There are three issues bubbling out of the Ooze of Incompetence at these lenders. First, they can't get deals done. The ship is headed for the rocks, and the captain has abandoned ship. He's sitting comfy on his own private island sipping cocktails with the Fat Lady in the thong. This is a very severe crisis in operations. Lenders are not responding to offers, and when they do respond, they make the process so convoluted, that the buyers often walk away and buy another property . . . at a lower price. Instead of jumping on contract and moving them through the system, the lenders have stalled the process to an agonizingly painful stand-still.

Second, over the last two weeks we have seen another leg down in pricing from some lenders. And the pricing makes no sense, because if they managed the sale process properly, there would be no need to slash prices. These two events are disturbing. We are essentially seeing a total collapse in the housing market. Unless someone sprinkles these guys with Smart Dust, they are going to destroy themselves. When you look at this, you don't think it can get any worse, but it keeps getting worse.

The third issue is financing. Its tough to put a deal together, and when you do, usually FHA is involved. The 3% down payment is a myth. Either the seller or the builder pays it, so you still have folks getting into homes with zero down. And the moment they close, they are into negative equity. Thirty days later, they could be 10-15% negative when you consider a falling market and the costs of a buy/sell transaction. When things go bad, as they are, it is the Fed that is eating the 10-15% plus another 50-60K in expenses to unload foreclosed properties . . . at a very minimum. If you want to hear more, you need to be a client. This is a very complicated subject, but it is at the heart of our crumbling economy.

If you take a moment to list it all . . . consumer debt, swaps, defaults, foreclosures, commercial debt and on and on an on, you will realize we are witnessing a complete collapse of our country's financial institutions. And all we are doing . . . or all we can do at this point is watch it all unfold.

Armageddon - I believe it is all but written into the screenplay at this point. The recent rally of 50-100% in banks and builders is indicative of the nonsensical days leading up to October 1929. What I am seeing in the field, is a crumbling of the builders and the banks, followed by retailers. But on Wall Street, Paulson is passing out the Kool-Aid and telling us we need protection from the short sellers. Let's face it, if the short sellers push the envelope too far, buyers have the right to step in and take advantage of the bargains. But when the Federal Government, or should I say Goldman Sachs (Paulson), take it upon themselves to change the rules, that's when you can bet Armageddon is in the cards. Over the next few weeks, we will all see just how much more pain there is, and the bag of garbage we just threw up in the air, will come back down harder and stinkier.

Crisis Investing - Please. If you are not considering it, you need to start thinking about it. If you want to buy into the rally and continue to sip the Kool-Aid, you will be devastated.

IN CLOSING . . . I wish I was a market timer with magic dust and a magical wand. For the folks that just joined me, there would have been less pain if I was a magician. And trust me, I feel it. My clients are like family. I have a bottle of Tums on my desk today, and I am still nauseous. I can take some relief in the nice emails I am receiving, and so far I haven't received any ugly ones . . . but I know some of you want to send them. You need to sit tight, and not let Paulson and his fraternity buddies shake you out. They are systematically shaking out the pension funds our municipal government accounts and so much of the wealth this country has built up over the last 200+ years. Unfortunately, the American public enjoyed the ride . . . and that ride is coming to an abrupt end.
Whether it is a week a month or a few months, our markets will be much lower and the financial crisis I have written about for the last four years will be reality. Unfortunately, it will not be a Reality TV Show that we can simply change the channel on.

Senator Bunning summed it up for us last week - "The Fed is the Systematic Risk."

By the way, even when the Housing Bill passes today, it will probably not have a positive effect on the markets. It is old news, and if you really look at it, the Housing Bill is bad for the economy and the markets.

Mike Morgan - Behind Enemy Lines - www.888Mike.com

Institutional Website - www.Morgan-Florida.org

Comments from Crisis Investing Conference Call

Mike Morgan, J.D., RIA, CRS, GRI — Sun, 20 Jul 2008 15:28:20 -0500

Below are just a few of the comments I received or that were posted, regarding last night's conference call, which ran for three and a half hours. There were only two folks that were disappointed out of more than 100. Maybe thas was Ivy Zelman and Mike Corkery, so to them, all I can say is . . . Cramer is free. The two negative responders were upset that I did not go into specifics about certain stocks. That was NOT the purpose of the call. I will refund their money if they will send me an email. The purpose of the call was to discuss market conditions that you will NOT hear on TV and to discuss sectors. When you buy into a mutual fund or a hedge fund, they do NOT discuss individual stocks and their logic behind them. I actually went a lot further than I should have, and I upset many of my paying clients.

I reserve specifics for my clients that pay for my time and research. I provide my clients with a great deal of information based on what they pay for. If you want free, you know where to get it. I hold private conference calls for clients, where they can ask me anythng they want. But it would be wrong for me to have give out detailed information and research to the general public. Why would my clients want to pay me? So I am sorry the two sour pusses wasted their time, as they must know everything there is to know in the Universe about what is going on in the markets. NOT.

Here are a few comments from Conference Call Participants.

For now it's no fun to be on the wrong side of a short squeeze, but you made a compelling case last night. Thanks for giving us so much time. - H.R.

I was on your conference call last night and was thinking about joining the crisis portfolio for one month to check it out. Note from your bio that you are a Ohio U alumnus - I graduated from there in 1993, probably a few years after you I really enjoyed the call - like somebody else said it didn't really seem like 3 1/2 hours. I appreciate your honest and straightforward approach to your clients. Thanks! - K.B

You are very well grounded Mike. I am an executive with a very large mutual fund. Your insight is better than anyone we have on staff. While you are ot giving me hard numbers, yo are giving me what no one here can. Anyone can give me numbers. In 47 years, I have yet to find a genie in a bottle. I just did. - K.A

I enjoyed the conference call last night. I share your economic outlook. - E.N.

Great call last night. I was very impressed. So much so that I joined at the $150 level. I'm excited to be working with you. Many Thanks. - B.R. Again, I can't thank you enough for last night. The fact that you took that much time and energy to speak to me (us) about investing and real estate at such a cost to you shows a lot about your character and commitment to help people......all I can say is thanks. Needless to say, I'll be around for a long time. - B.G.

Great call tonight; I think everyone really enjoyed it and I admire your energy; I think you outlasted the vast majority of the callers and you were doing all the work! - J.S.

Anonymous said... - Thanks so much Mike.I never believed you would talk for three and a half hours. I was on the edge of my seat. You should really have your own show. No - you shouldl have your own channel. The best thing was I was interested in everything you said and it was way past my bedtime. Maybe instead of going from 9:30 to 1:00am, try a weekend call on a Saturday.

We have been with you for almost a year. I enjoy listening to you because you give me the big picture so I feel comfortable with my investments. You do it in a way that both of us understand, but sometimes you just keep on going like the Everday Bunny. We can't absorbe it all. Thanks goodness last night's call was on a replay because after two hours our heads were spinning and my wife has a pad full of notes. - J.J.L. III

I've never been on a three hour conference call that kept me interested. In fact, my wife started listening and we stayed till the end. You need to break it up into two calls. You need to get your own TV show. I've never heard so much solid advice with meat to back it up. Very impressive. - J.D. and U.D.

The BEST $25 I have ever spent in my life. Enough said. - R.L.

I can't believe you respond to jackasses on your comments section in your blog. Mike, you have been totally on the money. I am a trading account and I want the other to know how sharp you have been, even when I thought you were totally nuts, like many of the jackasses think now. Patience is a virture. Pulling Mike's chain is not nice. Keep it up Mike. Ignore the idiots. Please don't let them effect your thoughts and process. - P.P.

Mike, your behind enemy lines look at things is comforting. I realize we had a couple of tough days and that is hard to swallow. After hearing you last night, it is obvious that you know what you'r talking about. You certainly didn't have to spend that much time sharing as much as you did. Your calls have been great. For the stinki poos that are bitching, you sdhlouldn't even waste your time reading them. I say Thanksand Great Job. - W.R.

I too stayed until the bitter end (not so much of a sacrifice for me, as I am in San Diego, but still...) and honestly, I can't see how anyone could seriously complain about either your performance or the substance of the discussion. I am a client, so I will admit to some frustration at times when you couldn't speak in as much detail as you wanted due to non-clients on the call, but I understand, and my frustration was mitigated by the knowledge that a "clients-only" call is coming. Again, thanks for your insights, your honesty and the clarity with which you speak. Don't let the few complainers get you down - you are a treasure and much appreciated by many, especially those of us seeking the unvarnished truth about the unfortunate mess in our financial system.

Softshelledcrab said... I am among the group who was disappointed you would not go into specifics when people asked particular questions. You were very general and evasive. (Mike's Note: I was not evasive. I was very clear. I spoke about market conditions and many stocks. But why would I destroy my business revealing everything for free. Please . . . turn on the boob tube and get it for free from the biggest financial boob of the century, Jimbo. Boo Yah)

You're very knowledgeable and I've followed you from a distance for a while but I don't know what the purpose of tonight's call was. Every time you could have given us something of substance you said "I'm not going to into that on this call." - L (Mike's Note: As I noted on the call, the stuff I spend my time and money researching is not freebies. If you want freebies, please turn on Cramer, Kudlow, Becky Quick and the rest of the talking heads that have NO CLUE what they are talking about.)

I was on the conference call tonight (I stayed for the whole thing::)) and I wanted to tell you that it was great and I appreciate the time and energy you put into this. I was laughing out loud more than once. I also took a few pages of notes, so I found it very enlightening and helpful.
I also wanted to say that I appreciate your honesty and integrity and your generosity to give so much info for such an inexpensive cost. I am glad you hold things back and demand some money from people for your expertise, as one of my teachers said - giving away everything for free only shows you don't respect your own work. And then how can someone else respect your work? - C.R.

The sour tarts are probably your competition or two idiots that don't have the patience to listen and understand. That's the problem with today's cultures. They all want it now and on a silver platter and they want you to wipe their butts for them. O.W.

Mike, you shouldn't post that garbage some people say about you. It's nonsens and makes you look bad. I have yet to see you make a bad call and I have yet to refruse to answer any of my questions. But I am one of your clients that "loves" writing you a check everymonth. And this year we're already planning a trip to visit you in October to spend a day with you. Of course we will buy the day. :) - Use my name - George Conover

It makes me sick that you would post the whining of two obviously spoiled brats that did not get what you talked about for three and a half hours. Who talks for three and a half hours and keeps people interested? You did. Be proud of it and ignore the idiots of the world. Those are the people that just want a fast buck and the ones that got us into this mess. Excellent job. My Mom would have said you are a true mensch. You are blessed. - H.Z.

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