The Great Depression was caused by overinflated value of assets. The Roaring Twenties came to an abrupt end in 1929 when the market collapsed. Now, we have regulation to prevent such excessive leverage. You no longer can put down 5% and borrow 95% on margin to put into a "great company stock" and make 10,000%+ profit.

Today, the situation seems to be very similar to the conditions of the Roaring Twenties. Housing values accelerated upwards, doubling every year. But when bubble bursts, who will end up holding the bag? In the 1929, that ended up everyone as the people owing the money had nothing. Do people affected by current housing correction have something? BBC has an interesting article about this,

In May 2006, at the height of the housing boom, Karen Trainer bought a $500,000 apartment in California - with money borrowed from her bank.

By this year, Karen still owed $500,000 on her mortgage, but her apartment was worth $200,000 less.

So she was deep in negative equity and, to make matters worse, the interest rate on her loan was about to increase.

"I thought 'this is crazy'," Ms Trainer says. "It just does not make financial sense."

As a successful professional, Karen could comfortably have managed the higher mortgage payments her bank demanded.

Instead, she decided to stop her mortgage payments altogether and let her bank repossess her apartment.

Her credit record will be badly damaged by the decision, but Ms Trainer expects this to recover soon.

"Generally speaking, within 5 years you are about back where you were, so my husband and I decided we'll take the hit and live with it."

source: http://news.bbc.co.uk/2/hi/business/7529277.stm

Ladies and gentleman, I bring you financial armageddon with this news.

This is not an exaggeration. The debts owed on many mortgages that were interest-only, or the great bubble-mortgages (cheap rate for 3 years, then refinance). The financial sector has not screwed themselves over, they have screwed everyone over. This includes people that take care of their finances, pay (or paid off) their mortgage and never were late on their credit card payoffs.

How does it affect all of us?

The government will bail out all the institutions that are ending up holding these worthless properties. National debt will increase. Dollar will devalue. Inflation will increase.

This will affect people everywhere, including Canada, Europe, China, India. The toxic debt has reached every corner of the financial world. Hundreds of billions have already evaporated. When this is over, trillions may be at risk. Trillions that never existed in the first place, but were used as collateral for investments, including creating more worthless property.

When people start walking away, without any repercussions, the potential for damage is worse than 1929 stock market collapse. Especially in light that many view "we'll take the hit" as walking away from their debt!!! Wow!

I'm but left with a question. Why can't I just buy stock 5 cents to a dollar and when the company goes sour, I can just walk away like these homeowners?

Disclaimer: I do not have money invested in the banks, financial sector, or housing. Nor have I lost money because of these shenanigan. This is not a sour grapes post.

1. Fed 50 point "emergency" cut
2. Fed 75 point cut
3. Fed cuts some more (lost count!)
4. Fed gives banks $200 billion to play with
5. Fed is planning on another 75 point cut next week

All this in light that there is serious inflation problems coming this way. Prices for products in EUR are a lot higher than USD, but aside from that, recently inflation for manufacturing input costs was way up. Inflation in the manufacturing center of the world, China, is nearing or surpassed 10%. The answer to all of this? Fsck the long term monetary policy - bail out the banks at all costs.

If this continues, prices for commodity prices are not going to stay where they are, they are just going to go up. Commodities are the ONLY thing that can be perceived as having any real value anymore. Fed just bought $200 billion of "mortgage backed assets". If they instead bought toilet paper, it would actually be a worthwhile investment. I have a feeling that most of the so called "mortgage backed assets" will be worth closer to $200 million.

We are quickly getting into uncharted territory with these cowboys at the helm. The future of USD and the speed and magnitude of its devaluation is currently a big ?

Amerigo Resources (ARG.TO) over the last year has acquired a somewhat significant stake in the Candente Resources (DNT.TO). As of Nov. 16, 2007, Amerigo released the statement that,

Amerigo now currently owns 9,360,946 common shares of Candente, representing approximately 13.20% of Candente's 70,923,127 issued and outstanding common shares. Amerigo currently has no future intention to acquire beneficial ownership of any additional securities of Candente

As of last weekend and today, Amerigo and Candente have both sent out notices of a "cocktail reception". It will be held on March 2nd.

Does anyone know more about this? I'm thinking it may mean either a merger or at least a close working relationship between the two companies. Amerigo has had significant experience in processing of low grade deposits for significant profits, namely, El-Teniente tailings in Chile. Recently Candente encountered similar "relatively low" grade deposits of copper in Peru.

This may be a significant opportunity for Amerigo to diversify out of their El-Teniente project.

I'm guessing more follow-up on this in a week!

Monday, Jan 21st, 2008 - the day appears to have started as the day of the Uranium stock meltdown. As I type this the TSX market is down over 500 points or almost 5% over Friday. Uranium stocks are having one one of the nastiest starts out of all the resources. PDN, UUU and MGA are all down in excess of 10%.

Current prices put UUU at just below $7, PDN at $4.25 and MGA at just about $2. Considering that many here, including myself, view Uranium stocks as a long-term bull due to energy constraints, are you guys buying these stocks now or waiting for the current liquidity mess to shake out a little more?

New UK power plants can be built now, but no government subsidies. From the article,

French energy giant EDF has already said it plans to build four nuclear plants in the UK by 2017, without subsidies, following the government's announcement.

http://news.bbc.co.uk/2/hi/uk_news/politics/7179579.stm

According to the graphic in the article, the planned shutdowns (age related) are 10-15GW by 2025.

The article also raises an issue that no nuclear power plants were ever built without government subsidies. While that is true, all previous designs were mostly for the purposes of plutonium production instead of actual power generation. Now UK has a major problem with so called "plutonium waste".

Overall, the governments are finally starting to understand that nuclear power may be the only reliable way of providing CO2-nil electrical power in the short term. So forget gold - buy uranium