Feb. 27 (Bloomberg) — When Berlin resident Simone Klostermann returned from vacation and couldn’t find her Mercedes SLK, she thought it had been towed. Police told her the 35,000- euro ($45,000) car had been torched.

“They’d squirted something flammable into the car’s engine block in the gap between the windshield and the hood,” said Klostermann. “The engine was completely destroyed.”

While youths in Athens protest by throwing Molotov cocktails, in Paris by toppling barricades, and in Budapest by hurling eggs at politicians, protesters in Berlin rage at their economic plight by targeting the most expensive cars — symbols of German wealth and power.

If you have not downloaded and read Robert Prechter’s “How To Survive Deflation” you probably should. Prechter has been spot on about the ugliness that was coming with the economic crisis he forecast several years ago. It’s free and way more valuable than anything you’ll see on CNBC.

Source: Bloomberg

Here’s link to a Globe and Mail interview with historian Niall Ferguson.

In the finest (worst) journalistic tradition the paper takes Ferguson out of context to creates a scare headline with “There will be blood…” but the interview goes much deeper than that. Ferguson is a good read because he is a financial historian and not an economist. Global financial panics are not a new invention. Neither is globalization. There is something to be learned from the period 1870 to 1914.

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By: Greg Mankiw

Here (in blue) is the yield on an inflation-adjusted bond and (in red) the yield on a nominal bond of approximately the same time-to-maturity. The negative inflation compensation that showed up a few months ago (when the blue line was well above the red) has shrunk to about zero. These relative yields are moving back toward a more normal, and healthier, alignment.

Ed. If you understand what that means then take a bow.

Discover The Biggest Threat To Your Money Right Now

If inflation is a quiet thief, then deflation is an armed burglar. You wouldn’t invite either into your home, yet chances are that one of the two is stealing your money right now.

Elliott Wave International, the world’s largest market forecasting firm, has just released a free report that reveals which of these threats you should prepare for right now.

The free 8-page report is adapted from Bob Prechter’s New York Times best-seller, Conquer the Crash, which was published far before the latest headlines warned of inflationary and deflationary dangers.

With October 2008 consumer prices plunging at a record rate not seen in more than 6 decades, now is hardly the time to ignore Prechter’s prescient message of how to survive and prosper in the today’s market environment.

Protect yourself and your loved ones.

Visit Elliott Wave International to Download Your Free Report on Inflation and Deflation.

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About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world’s largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.

November 11, 2008

With big bank bailouts dominating the news, there’s no better time to get the truth about bank safety.

This informative article has been excerpted from Bob Prechter’s New York Times bestseller Conquer the Crash. Unlike recent news articles that are responding to the banking crisis, it was published in 2002 before anyone was even talking about bank safety. However, you may find the information even more valuable today than ever before.

For even more information on bank safety, visit Elliott Wave International to download the free 10-page report, Discover the Top 100 Safest U.S. Banks. It contains details on how you can protect your money from the current financial crisis, updated for 2008.

Risks in Banking

Between 1929 and 1933, 9000 banks in the United States closed their doors. President Roosevelt shut down all banks for a short time after his inauguration. In December 2001, the government of Argentina froze virtually all bank deposits, barring customers from withdrawing the money they thought they had. Sometimes such restrictions happen naturally, when banks fail; sometimes they are imposed. Sometimes the restrictions are temporary; sometimes they remain for a long time.

Why do banks fail? For nearly 200 years, the courts have sanctioned an interpretation of the term “deposits” to mean not funds that you deliver for safekeeping but a loan to your bank. Your bank balance, then, is an IOU from the bank to you, even though there is no loan contract and no required interest payment. Thus, legally speaking, you have a claim on your money deposited in a bank, but practically speaking, you have a claim only on the loans that the bank makes with your money.

If a large portion of those loans is tied up or becomes worthless, your money claim is compromised. A bank failure simply means that the bank has reneged on its promise to pay you back. The bottom line is that your money is only as safe as the bank’s loans. In boom times, banks become imprudent and lend to almost anyone. In busts, they can’t get much of that money back due to widespread defaults. If the bank’s portfolio collapses in value, say, like those of the Savings & Loan institutions in the U.S. in the late 1980s and early 1990s, the bank is broke, and its depositors’ savings are gone.

Because U.S. banks are no longer required to hold any of their deposits in reserve, many banks keep on hand just the bare minimum amount of cash needed for everyday transactions. Others keep a bit more. According to the latest Fed figures, the net loan-to-deposit ratio at U.S. commercial banks is 90 percent. This figure omits loans considered “securities” such as corporate, municipal and mortgage-backed bonds, which from my point of view are just as dangerous as everyday bank loans. The true loan-to-deposit ratio, then, is 125 percent and rising. Banks are not just lent to the hilt; they’re past it.

Some bank loans, at least in the current benign environment, could be liquidated quickly, but in a fearful market, liquidity even on these so-called “securities” will dry up. If just a few more depositors than normal were to withdraw money, banks would have to sell some of these assets, depressing prices and depleting the value of the securities remaining in their portfolios. If enough depositors were to attempt simultaneous withdrawals, banks would have to refuse. Banks with the lowest liquidity ratios will be particularly susceptible to runs in a depression. They may not be technically broke, but you still couldn’t get your money, at least until the banks’ loans were paid off.

You would think that banks would learn to behave differently with centuries of history to guide them, but for the most part, they don’t. The pressure to show good earnings to stockholders and to offer competitive interest rates to depositors induces them to make risky loans. The Federal Reserve’s monopoly powers have allowed U.S. banks to lend aggressively, so far without repercussion. For bankers to educate depositors about safety would be to disturb their main source of profits. The U.S. government’s Federal Deposit Insurance Corporation guarantees to refund depositors’ losses up to $100,000, which seems to make safety a moot point. Actually, this guarantee just makes things far worse, for two reasons. First, it removes a major motivation for banks to be conservative with your money. Depositors feel safe, so who cares what’s going on behind closed doors? Second, did you know that most of the FDIC’s money comes from other banks? This funding scheme makes prudent banks pay to save the imprudent ones, imparting weak banks’ frailty to the strong ones. When the FDIC rescues weak banks by charging healthier ones higher “premiums,” overall bank deposits are depleted, causing the net loan-to-deposit ratio to rise.

This result, in turn, means that in times of bank stress, it will take a progressively smaller percentage of depositors to cause unmanageable bank runs. If banks collapse in great enough quantity, the FDIC will be unable to rescue them all, and the more it charges surviving banks in “premiums,” the more banks it will endanger. Thus, this form of insurance compromises the entire system. Ultimately, the federal government guarantees the FDIC’s deposit insurance, which sounds like a sure thing. But if tax receipts fall, the government will be hard pressed to save a large number of banks with its own diminishing supply of capital. The FDIC calls its sticker “a symbol of confidence,” and that’s exactly what it is.

For more information on bank safety, including how to choose a safe bank during the current financial crisis, download EWI’s free 10-page report, Discover the Top 100 Safest U.S. Banks.

The TED Spread is off its sheer panic highs but still way above normal. What can we take from this? That banks are still more concerned about not risking their capital, even with other banks, than they are about making money with it.

If you’re like most investors, you’ve been nearly brainwashed with conventional market “wisdom” that stocks are the best way to grow your portfolio.

You would be crazy not to have your money in the markets, right?

But when markets drop, as we’ve seen in this credit crisis, it’s amazing how quickly the story changes.

Steve Hochberg and Pete Kendall, editors of Elliott Wave International’s Financial Forecast, challenged the notion of stocks’ superiority years before this latest downturn.

Learn how cash has been king – and will remain so – far longer than the latest news headlines may have you believe in this free excerpt from Elliott Wave International’s Credit Crisis Survival Kit.

Elliott Wave International has also made the full Credit Crisis Survival Kit available free for a limited time. In addition to this excerpt, it contains 14 other articles, reports, and videos that reveal how to survive and prosper during the credit crisis. Visit EWI to download the kit, free.

Cash’s Invisible Reign Made Visible
[excerpted from Elliott Wave Financial Forecast, August 2008]

With respect to cash and its status as the preeminent financial asset, however, we are starting to wonder if investors will ever come around to our point of view, which, as we explained in the March special section, is that there are times when “the phrase ‘focus on the long term’ means “get out and wait.’” As we also pointed out, the last eight years are clearly one of these times, as cash has outperformed all three major stock averages over this period. A July 3 USA Today article shows how this outlook is actually becoming more farsighted as the bear market intensifies:

3-month Treasuries Beat
S&P 500 for past 10 Years

The article says, “Investors who bought stocks for the long run are finding out just how long the long run can be.” But the farther back in time cash’s dominance stretches and the rockier the stock market gets, the farther investors seem to move from ever taking anything off the table. After stating that “there can be times, long times, when stocks won’t beat T-bills,” a professor and popular buy-and-hold advocate is cited as “optimistic that the next 10 years will be better than the past decade.” In March EWFF stated, “Cash will continue to outperform until stocks are no longer fashionable.” There is no sign that such a condition is even close to happening.

It’s somewhat amazing that cash is not capturing anyone’s fancy because a tremendous society-wide thirst for cash is spreading fast. “In a deflation,” the Elliott Wave Financial Forecast has stated, “Rule No. 1 is to unload everything that isn’t nailed down. Rule No. 2 is to sell whatever everything remaining is nailed to.” The banking system is surely deflating, because, echoing Elliott Wave Financial Forecast’s wording again, “Desperate American Banks Are Selling Everything That Isn’t Nailed Down.” SunTrust is selling its stock in Coca-Cola, an asset the bank held for 90 years. Merrill Lynch sold its founding stake in Bloomberg as well as various other subsidiaries.

Meanwhile, “Americans are selling prized possessions online and at flea markets at alarming rates.” Pawnshops and auction sites are booming. At Craigslist.org, the number of for-sale listings soared 70% in eight months. This fits with our review of Craigslist’s prospects when it was getting started in 2005: “This is just the set-up phase. Once the global garage sale really gets rolling, truly astounding volumes of dirt-cheap goods will be available on-line and elsewhere.” The global garage sale is on. The chart of the U.S. savings rate shows that the bull market in cash has come to life.

A 30-year downtrend in savings rates ended at minus 2.3% in August 2005. In May 2008, the savings rate skyrocketed to 5%. This jolt may be somewhat overstated due to the arrival of the government’s stimulus checks, but the burst should be the start of a critical new mindset among consumers. When the government showered the economy with $600 checks, many did something they never would have thought of through most of the bull market: They put the money in the bank, which is exactly what the administration did not want. In fact, federal, state and local governments are desperate for the tax revenue that a little ripple-effect spending would have generated.

According to the National Conference of State Legislatures, states must close a $40 billion shortfall in the current fiscal year. “The problem today is that tax revenue is vanishing,” says a story about the sudden appearance of the worst fiscal crisis in New York since 1975. Even cities like East Hampton, New York, where someone paid $103 million for an oceanfront house last year, are out of money. “Nobody understands how it happened,” says one resident. The pages of this newsletter show otherwise. If we are right, a deflationary decline is depleting and destroying cash flows in novel new ways that no one alive has experienced before.

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The previous analysis was excerpted from Elliott Wave International’s Credit Crisis Survival Kit. The kit, featuring 15 free resources to help you survive and prosper during the credit crisis, is available free. Visit EWI to download the kit, free.

3 Shocking Answers!

Bob Prechter, President of Elliott Wave International (EWI), is no stranger to challenging the status quo. His New York Times bestseller, Conquer the Crash, was published in 2002 before anyone was even talking about the current financial crisis.

In his recent 10-page market letter, Prechter shifts his focus to the government’s role in the latest financial turmoil.

Elliott Wave International is offering the full 10-page report free if you’d like to read all 28 answers. Visit EWI to download the full report, free.

Here are 3 questions excerpted from the free report:

1. Didn’t Congress create the Federal Housing Authority, Fannie Mae, Freddie Mac, Ginnie Mae and the Federal Home Loan Banks for the purpose of helping the public buy homes?

You’re kidding, right? What happened is that clever businessmen schemed with members of Congress to create privileged lending institutions so they could get rich off the public’s labor. In return, members of Congress got big campaign contributions from the privileged corporations and, as a bonus, even more votes. The public’s welfare had nothing to do with it.

Who celebrated when Congress passed the latest housing bill? Answer: “The California Mortgage Bankers Association applauded Congress for permanently increasing the size of loans Fannie Mae and Freddie Mac can buy….” (USA, 7/28) The legislation exists to “protect the nation’s two largest mortgage companies….” (NYT, 7/24) Who took out full-page ads to encourage Congress to “enact housing stimulus legislation now”? Answer: the National Association of Home Builders. Who celebrated when the administration “unveiled a new set of best [sic] practices designed to encourage banks to issue a debt instrument known as a covered bond”? Answer: “[Treasury Secretary] Paulson was joined at the news conference by officials from the Federal Reserve [and] the Federal Deposit Insurance Corporation…. Officials from banking giants Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. issued a joint statement saying, ‘We look forward to being leading issuers’” (AP, 7/29) of covered bonds. And voters still believe that Congress is there to help the needy.

2. Who cares if a bank goes under? Won’t the FDIC protect depositors?

The FDIC is not funded well enough to bail out even a handful of the biggest banks in America. It has enough money to pay depositors of about three big banks. After that, it’s broke. But here is the real irony: The FDIC, as history will ultimately demonstrate, causes banks to fail. The FDIC creates destruction three ways. First, its very existence encourages banks to take lending risks that they would never otherwise contemplate, while it simultaneously removes depositors’ incentives to keep their bankers prudent. This double influence produces an unsound banking system. We have reached that point today. Second, the FDIC imposes costly rules on banks. In July, it “implemented a new rule…requiring the 159 [largest] banks to keep records that will give quick access to customer information.” As the American Bankers Association puts it, the new rule “will impose a lot of burden on a lot of banks for no reason.” (AJC, 7/19) Third, the FDIC gets its money in the form of “premiums” from—guess whom?—healthy banks! So as weak banks go under, the FDIC can wring more money from still-solvent banks. If it begins calling in money during a systemic credit implosion, marginal banks will go under, requiring more money for the FDIC, which will have to take more money from banks, breaking more marginal banks, etc. The FDIC could continue this behavior until all banks are bust, but it will more likely give up and renege. Remember, every government program ultimately brings about the opposite of the stated goal, and the FDIC is no exception.

3. Who are the “homeowners”?

Everywhere you turn, news articles are discussing how Congress, the President and the Fed are taking action to “help homeowners.” People’s understanding of this statement is 100 percent wrong. The homeowners in question are not the residents of the houses. The homeowners are banks. Unlike some states, Georgia made its law very specific on this point. Our local paper recently explained that, by recognizing the reality of ownership, “Georgia employs primarily a nonjudicial foreclosure” and therefore “has one of the fastest procedures in the country.” Specifically, “The property owner gives the mortgage holder a ‘security deed’ or a ‘deed to secure debt’. Technically, until the debt is paid, in full, the mortgage holder owns the property and allows the borrower to possess it.” (GT, 8/6) In states where the mortgage holder is deemed the property owner, the title is merely a legal technicality. The day he stops making mortgage payments, he no longer owns the property; the bank does. After foreclosure, many of those whom politicians and the media call homeowners will simply go from paying interest to a bank to paying rent to a landlord. For those with little or no equity, it’s not that big a deal. The real devastation is happening in banks’ portfolios, and banks, not home-dwellers, are the ones whom the government is trying to rescue, at others’ expense.

One might be tempted to charge therefore that Congress makes its laws for the purpose of helping banks. This idea, too, is incorrect. Helping banks is merely a side effect. The reason that Congress creates privileges for bankers is to benefit politicians. They make laws in response to campaign contributions from lending institutions, real-estate organizations and builders’ associations. They also garner votes from mortgage holders and, miraculously, from voters who think that their “representatives” are being “compassionate.”

The previous 3 questions and answers from Bob Prechter were excerpted from his recent 10-page market letter, The Elliott Wave Theorist.

Elliott Wave International is offering the full 10-page report free if you’d like to read all 28 answers. Visit EWI to download the full report, free.

The information in your credit reports at the three major credit reporting bureaus is too important to just ignore and hope for the best. You can contact the three major credit bureaus at the website annualcreditreport.com for a free copy from each of the three major credit bureaus one time per year. If you request only one of the three reports every four months then you can monitor your credit history for free.

You can dispute outdated or incorrect information in your credit report. That much should be common knowledge to every adult consumer by now. But this article will introduce you to some little-known techniques that you can use to fix some of your credit related problems and boost your credit score.

Tip #1: The address you use when applying for credit makes a difference. If you don’t use your regular street address, but instead provide a mail box number, UPS store, or similar outfit on your credit application, it is less likely you’ll be approved. That address comes up in the credit bureau systems as not being a real address.

Tip #2: It’s not enough to just remove negative information from your credit report; you must add positive accounts in order to improve your credit rating. One fast way to add a positive account is by using your savings account as collateral for a loan from your bank. Make it a small loan and when the loan gets funded put the cash in your checking account and set up an automatic bill pay so there is no chance of being late with a payment.

Tip #3: Being self-employed hurts your credit. If you are a sole proprietor, it is to your advantage to become incorporated. Lenders like stability, and employment with a company (even if it’s your own), looks better to them than someone who is self-employed. There are tax implications in doing this so better check with a good tax guy first.

Tip #4: Even if you have a good credit rating, your credit rating can still take a hit if your debt load gets too high, maybe as little as 50% of available credit. If at all possible you want to get your ratio of debt to reported available credit down to 30% or less. If you don’t have the cash to pay it down then try to raise the credit limits (available credit) on your existing accounts. The credit bureaus average across all accounts so success with even one account will help more than doing nothing at all.

Tip #5: It is better to carry a balance on credit card and installment accounts, even though you’ll be paying interest on them every month than it is to pay off the accounts and bring the balance to zero. Keep a 10% to 30% debt to credit ratio on all your accounts if possible. That demonstrates to potential new lenders that you are a solid, financial risk who can handle credit.

Tip #6: Avoid free credit report services that are popping up on the net and advertise on TV. Most free services will give you the first 30 days free, and then nail you with a hefty monitoring fee. Those TV ads have to paid for. You can get a free copy of your credit report once a year from an organization set up by the credit bureaus themselves.

Tip #7: Just one payment that goes more than 30 days overdue can ruin all your hard work. If you’ve worked hard to clean up your credit report, don’t blow it by missing another payment date. Just one “late-pay” may have a huge impact on your credit rating. As much as 100 points on your credit score for one late payment on even a small amount.

In tight credit times like these, good credit is more important than ever. The median credit score is 723 and that should be your absolute minimum goal. You can take charge of your financial affairs, and reap the rewards of lower interest rates, and even lower insurance premiums. And if you arm yourself with the right information, you can do it all yourself!