Howard Davidowitz says Wall Street is A Ponzi Scheme with Lies and Fraud

Day one of the Financial Crisis Inquiry Commission’s two-day hearing on AIG derivatives contracts featured testimony from Joseph Cassano, the former head of AIG’s financial products unit. Goldman Sachs president Gary Cohn was also on the Hill.Meanwhile, the Democrats are still trying to salvage the regulatory reform bill, with critical support from Senator Scott Brown (R-Mass.) reportedly still uncertain.According to Howard Davidowitz of Davidowitz & Associates, what connects the hearings and the Reg reform debate is the lack of focus on the real underlying cause of the financial crisis: Fraud.”It was a massive fraud… a gigantic Ponzi Scheme, a lie and a fraud,” Davidowitz says of Wall Street circa 2007. “The whole thing was a fraud and it gets back to the accountants valuing the assets incorrectly.”Because accountants and auditors allowed Wall Street firms to carry assets at “completely fraudulent” valuations, he says the industry looked hugely profitable and was able to use borrowed funds to make leveraged bets on all sorts of esoteric instruments. “Their bonuses were based on profits they never made and the leverage they never could have gotten if the numbers were right – no one would’ve given them the money in their right mind,” Davidowitz says.To date, the accounting and audit firms have escaped any serious repercussions from the credit crisis, a stark difference to the corporate “death sentence” that befell Arthur Anderson for its alleged role in the Enron scandal.To Davidowitz, that’s perhaps the greatest outrage of all: “Where were the accountants?,” he asks. “They did nothing, checked nothing, agreed to everything” and collected millions in fees while “shaking hands with the CEO.”

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Inflation or deflation – or Both? Mish vs. Dr. Doom

Which is the greater threat, inflation or deflation?In Marc Faber and Michael “Mish” Shedlock, we found two market watchers ready (and able) to champion both sides of this great debate.Shedlock, an investment advisor with SitkaPacific Capital and author of the economics blog, MISH’S Global Economic Trend Analysis, made the case for deflation: Credit is contracting, despite Ben Bernanke’s best efforts to flood the financial system with liquidity.”The money supply is just sitting there as excess reserves on bank balance sheets,” Mish says. “Bernanke can print this money but unless it makes its way into the real economy we’re not going to see inflation.”In addition, he predicts “another leg down” in housing and commercial real estate, more consumer loan defaults, and notes state and local governments are (finally) cutting back on spending in the face of falling tax receipts and budget deficits. All these trends will contribute to the deflationary force of credit contraction, Mish declares.But Shedlock is missing one critical factor says Faber, publisher of the Gloom, Boom and Doom Report: “When the economy’s bad, governments pile up these fiscal deficits and they print money” to offset the deleveraging of the private sector, he says. “They’re going to print and print and print.”If the economy sours again and especially if deflationary forces take hold, we’ll have “even more stimulus packages and even more printing,” Faber says. “That will bankrupt western governments – not just in the U.S. but everywhere. “And by that, he means the dollar and other western currencies will collapse, leading to a bout of rising (if not hyper-) inflation around the globe, which will spur all manner of societal unrest and geopolitical strife. Now you know why they call him “Dr. Doom.”

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The Days of “Buy and Hold” Are Over, says John Mauldin

The economy is still the pits yet stocks are on a tear. What’s an investor to do in these confusing times?John Mauldin, president of Millennium Wave Advisors, admits the average investor doesn’t “have as many good choices” as in the past.Contrary to what “experts” have told the public for years, now is not the time for buy and hold, Mauldin says. “You can be a trader. You can ride the wave, I’ve got no problem with that but I don’t think you want to buy something and hold it for five years.”That’s because he thinks another correction is coming in the not so distant future.Mauldin, who writes the Thoughts from the Frontline e-letter, does think there’s money to be made in real estate. With prices so depressed in many markets, he says buying property on the cheap and renting it “is a prescription for making money.”

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Stephen Roach says, U.S. Consumer Deleveraging is Just Beginning

Stephen Roach

Stephen Roach

Stephen Roach: “The market is in for a rude awakening,” said the chairman of Morgan Stanley Asia, whose grim outlook seems to remain constant wherever he’s domiciled. “This will be an usually weak recovery,” Roach said. “The damage done to the system [will be] lasting – we are not even close to healing. It’s ‘game over’ for the U.S. consumer. Deleveraging is just beginning.”

Here We Are Again – We Reached Dow 10,000 in March of 1999

Peter Boockvar, equity strategist at Miller Tabak, points out a lot has changed since the Dow first broke the magical 10,000 barrier in March of 1999.  While most other assets have gained value, the Dow is stuck in the mud.  Worse yet, we’re not even close to break even if you factor in the fact the dollar has lost 25% of its value in the last 10 years, based on the Dollar Index.

Here’s some of Boockvar’s other sobering stats comparing today vs. the first time the Dow cracked 10,000:

  • Total US debt was $24.6T vs $50.8T today.
  • The CRB commodity index was at 192.40. Today, it stands at 269
  • Gold was at $280. Now, it’s hitting all-time highs above $1,060 per ounce.
  • A barrel of crude oil was $16.44, today it cracked $75.

Jim Rogers Says, Gold Will Hit $2,000 and USA Will Lose Status As The World’s Reserve Currency

Good Time To Buy Gold

Good Time To Buy Gold

Famed investor Jim Rogers is “quite sure gold will go over $2000 per ounce during this bull market.”Rogers’ confidence gold will continue to rally stems from a view the U.S. dollar is on its way to losing status as the world’s reserve currency.”Is it going to happen? Yes,” Rogers says. “I don’t like saying it [and] I’m extremely worried about it but we have to deal with the facts. America is not getting better [and] the dollar is going to be replaced just like pound sterling [was].”Rogers didn’t offer a timetable, and it’s likely gold would exceed $2000 per ounce if the dollar were to lose its reserve status.Still, “I wouldn’t buy gold today,” Rogers says. “I think I’ll make more money in other commodities, which are cheaper,” as discussed in more detail here.Among many others, Rogers is “worried about the fact the U.S. government is printing huge amounts, spending gigantic amounts of money it doesn’t have,” the investor and author says. “People are very worried [and] skeptical about paper money [and] looking for places to protect themselves. The best way is to buy real assets. [That] has always protected one during currency turmoil, and it will again.”

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Marc Faber Is “Highly Confident” the Future Will Be Very Bleak: See Video on Tech Ticker – Yahoo! Finance

“The future will be a total disaster, with a collapse of our capitalistic system as we know it today, wars, massive government debt defaults and the impoverishment of large segments of Western society,” Marc Faber writes in the September issue of The Gloom, Boom & Doom Report.A statement like that pretty much speaks for itself, but it’s a bit more complicated than appears on first blush.Faber has been bullish — especially on commodities and emerging market stocks — for some time now and believes the current global recovery trade will last another two-to-three years, as discussed in more detail in a forthcoming clip. But he has major long-term concerns about the dollar’s long-term viability given rising U.S. deficits, massive unfunded mandates and the fact “we have a money-printer at the Fed.”This combination will eventually lead to runaway inflation, wholesale debasement of the dollar, and a major lowering of living standards for most Americans and many Europeans as well, says Faber, who is “highly confident” in this grim prediction.

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