September 2008 Newsletter
Issue Five, Volume Nine
I thought that everyone learned the most well-known lie of mankind at a very, very early age:
"I'm from the government and I'm here to help you."
It's amazing to me that just over a month ago I dedicated this newsletter to the history of the government
and Federal Reserve tinkering with the economy and the detrimental effect is almost always has on us.
I could never had envisioned this "Mother of All" bailouts getting dreamed up by this current group of
politicians and bureaucrats. This month's edition will be short, unsweet and to the point since my
schedule has been insane this year and you are already too aware of my inconsistency in drafting
these on a monthly basis. You can view last month's newsletter at this link:
First some very quick business.
NEW YORK AND GRAND CAYMAN TRAINING SESSIONS
I will be presenting two extremely timely seminars in New York in October and a particularly relevant
slate of "a la carte" one-day sessions in Grand Cayman in November. Here is brief list of those
programs and you can see the details of all New York and Grand Cayman classes at the following
Introduction To Securities & Markets - October 27, 28 & 29, 2008
CMO, ABS & CMBS Securities - October 30, 2008
The Hedge Fund Industry 2008 - November 17, 2008
Securities Operations, Processing & Accounting - November 18, 2008
Mortgage & Asset Backed Securities - November 19, 2008
CMO, ABS & CMBS Securities - November 20, 2008
Swaps & Swap Derivatives - November 21, 2008
I look forward to seeing you or your colleagues at one of these seminars.
I don't know how else I can refer to the events that have taken place over the past couple of weeks other
than "The Apocolypse". While I can certainly be prone to melodrama, take a look at how the dictionary
defines the term:
apocalypse - noun
5. any universal or widespread destruction or disaster: the apocalypse of nuclear war.
Note: An "apocalypse" is a final catastrophe.
Note: The Apocalypse is supposed to come at the end of the world or of time.
Perhaps you can see where I'm coming from with my assessment of the 850 billion dollar bailout (the
total price tag with all the added pork needed to get this thing passed by both chambers). We will not
recover from this decision in my lifetime and perhaps not my daughter's lifetime either.
What makes me sad and angry is that this plan will not work. Period. Paragraph.
You will not get me to admit that it even has a chance of working since it will not under any circumstance.
Already you hear some of the smartest people in the universe trying to figure out exactly how this thing is
even going to be implemented.
It took the United States 232 years in order to amass $9.7 trillion in national debt. It took the Treasury
Department, Federal Reserve and U.S. House & Senate exactly three weeks to add another trillion
dollars to that number. Based on my own views of the immediate future of the economy, we will be
unable to make any progress toward paying back a single dollar of all that borrowed money, and in fact
the U.S. Federal deficit will only be larger than the huge numbers anticipated into the far, foreseeable
While I was against the bailout of Bear Stearns, it was a relatively minor intervention by the government
in dollar terms and it would have been genius if it had stemmed the bleeding. But much has occurred
--Lehman Brothers is gone.
--IndyMac is gone.
--Washington Mutual is gone.
--Wachovia is about to go.
--Merrill Lynch is now owned by a bank.
--Goldman Sachs and Morgan Stanley are no longer investment banks.
--Fannie Mae and Freddie Mac are now U.S. government agencies.
--AIG is majority owned by the U.S. government.
Wall Street may perhaps never be the same, and that makes me enormously sad. I've spent my entire
adult life as a proud member of the investment community and we had quite a run for the past 28 years.
My fear is that we will no longer be viewed as "Masters of the Universe" and instead will now be looked
at as the "Masters of Disaster" to quote Apollo Creed. Frankly, Wall Street did themselves in during the
past ten or so years, but politicians and regulators have an equal share in shouldering blame for why
we're here. Barney Frank, Chuck Schumer and the rest of the guilty in this current debacle will get their
own analysis in a future newsletter since I worry I dedicate too much space to politicians already.
Let me summarize my thoughts and predictions about the financial and economic future in light of this
--Residential and commercial real estate values will continue to decline well into 2009 and very
possibly beyond. U.S. residential real estate values may decline another 15% to 20% from current
--There will be an acceleration of bank failures over the next 12 months, leading to further consolidation
in the industry.
--Americans, who are already drowning in debt and losing their jobs at the fastest pace in 17 years will
slow their spending to an absolute minimum in an effort to survive. Savings rates will quickly spike to
positive numbers for the first time in almost four years and the economy will continue to slow.
--U.S. unemployment will continue to rise and should be in excess of 7.5% by the third quarter of 2009
and possibly by the second quarter.
--The Federal Reserve will flood the economy with new money with passage of the "bailout", much as
they did in 1999 in preparation for Y2K. This may temporarily keep the stock market from declining, but
the end result will be more severe inflation than already predicted and perhaps a decline in the value of
the U.S. dollar.
--Barrack Obama will win the presidency and the Democrats will secure larger majorities in both the
House and Senate. Taxes of all sorts will be increased, spending increased and movement toward
protectionist policies regarding trade will all be implemented quickly. All moves will slow the economy
--As global investors digest and assess the assortment of new debt and liabilities taken on by the U.S.
government you will begin to see the slow rise of interest rates on U.S. Treasury securities demanded
as compensation for the perceived credit risk. These increases will also raise the cost of capital for
home buyers and corporations seeking to borrow money.
--With oil prices somewhat reduced and Democrats controlling the White House, House and Senate,
there will be further delay in drilling and exploration for new U.S. energy sources. While there will be
debate over pursuing alternative energy solutions, actual progress will be slow.
I wanted to get this newsletter out as fast as I could after the passage of this horrific legislation to
perhaps begin preparing my friends mentally and financially for what the economic future holds. There
was no need to try and rush it out in an effort to try and prevent Congress from passing it, since that was
a foregone conclusion. As always, I am trying to assess the new landscape in an effort to better try and
survive and thrive in the future while others lament and complain.
Please stay conservative in your own life and try your best not to lose your job, your money, your house
or your mind in the coming few years. It will be a tough slog, but the economy and America will
eventually depart this dark tunnel when we figure out what houses, stocks, bonds and the dollar are
worth. Unfortunately, this government interference will only make this take much longer than it needed to
be and make it much more painful as well.
Writing this newsletter also causes me to notice yet another sadness that I find unexpected, but wanted
to share with you also.
Watching a terrific Olympic games on my terrific high-definition television, streaming live from Bejing,
China, I couldn't help but be impressed with how far that country has moved toward capitalism and free
Watching the disgusting display on low-definition of the goings-on in Washington, D.C. during the past
three weeks shows me how far the United States of America has moved so far toward socialism.
As if two large ships are passing in the night on completely different journeys with both being unable to
change course in any rapid fashion.
I live in a country where over 80% of ALL mortgages being given to homeowners are being given by a
A country where the government owns the largest insurance company.
A country where the government rescues businesses with taxpayer money who have managed
themselves badly but are deemed "too large to fail".
It's a sad day in America and I wonder when and if we might ever get our pride back and once again be
that "Shining City on a Hill". All evidence says that it isn't going to be anytime soon.
YOUR SEPTEMBER BRAINTEASER
Another quick, and to the point brainteaser involves making something new out of existing letters. Here
is your question:
"Rearrange the letters in the words 'new door' to make one word. Can you figure out what the answer
Good luck, and when you can't take it anymore you will find the answer at the following link:
Copyright 2008, Michael Gasior. All Rights Reserved
AFS Seminars LLC
500 Chamberlain Hill Road
Middletown, CT 06457-5564
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