China Buys U.S.,
U.S. Guarantees 95%!
Research for Online Investors

by John Dalt

9/10/09

The Chinese Investment Corp. (CIC) is working with BlackRock and other funds to buy U.S. Real Estate.  That is great; let them spend their money to buy expensive real estate.  We all remember when Japan went on a buying spree in the ‘80’s, only to watch their investments sour.  The twist on the CIC investment is they want to access the U.S. Treasury-Federal Reserve Public-Private Investment Program (PIPP). PIPP is the government program to guarantee investor’s, up to 95% of their purchase of toxic assets from banks.  CIC is the sovereign wealth fund of the Chinese government!

CIC manages billions of dollars of government money that came from selling widgets to America (tainted with lead).  CIC wants to invest the Chinese government’s profits in our real estate, and real estate backed securities.  They want the U.S. government to guarantee their investment.  Where does the money come from that we use to guarantee the deals?  We borrow it from China.  Duh.

You should read this article; it is a follow up to the Wall Street Journal, who broke this story Tuesday.  Let me know what you think at feedback@galtstock.com

You may also want to read our article on PIPP, written April 3, 2009, “Public-Private Ponzi.”

Turbo Tim Geithner testified before the Congressional Oversight Panel (COP) today.  This was high theatre, Elizabeth Warren chaired the hearings.  I referred to Ms. Warren yesterday; she recommended that the government’s ownership of GM and Chrysler be placed in a trust to avoid political interference.  Ms. Warren is a former Harvard professor.  It became obvious who the professor was, and who needed to go back to school.  Turbo Tim stated that Chrysler and GM were “financial institutions”, but AT&T and American Airlines were not.  Then he added “not at the present time, but that can change.”  Do they have to build a car, or loan money to be a bank?  This was important because the TARP funds used to bailout the automakers were specifically earmarked for “financial institutions.”  You can read the TARP legislation under “Investor Resources.”

A quick excerpt from the TARP legislation.

“FINANCIAL INSTITUTION.—The term ‘‘financial institution’’ means any institution, including, but not limited to, any bank, savings association, credit union, security broker or dealer, or insurance company…”

I am not sure where GM and Chrysler fit in this definition, it must be the “not limited to.”  I am amazed that ONE congressman has not filed suit against the U.S. Treasury for misallocation of funds.  It is a felony, not unlike cheating on your taxes, but we already know how that turned out.  I guess it is not a crime if you do it in front of everyone, and brag about it.

The Energy Information Agency (EIA) released their weekly report this morning.  Crude oil inventories shrank 5.9 million barrels.  Imports were down only 481,000 barrels, most of the balance of the shrinkage was in increased build of gasoline (+2.1 million barrels) and distillates (+2 million barrels).  Distillate (diesel fuel) stocks are at their highest level in the last year.

The chart below shows the demand for crude oil and projections for future demand.  This should tell us most all we need to know about the future price of oil.  The biggest obstacle that may trip up crude oil is a strengthening dollar.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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