Thursday, August 13, 2009

How do we get out of this mess?

I think that's what Wall St is trying to figure out right now. Stocks were flat today as the battle at S&P 1000 rages on between the bulls and the bears. This was the 12th straight day that stocks have traded in a fairly tight range around the 1000 area.

I actually made my first trade in a few months today. I bought some August TBT PUTS before the 30 year auction results at 1PM on a hunch. I figured there was no way in hell the Ponzi machine was going to let a small $15 billion 30 year bond auction get in the way of the spring rally.

The FCB's don't participate much in auctions at the long end of the curve because of their fears around inflation so it was up to the Wall St to gobble up this paper and as usual the bubble boys did not disappoint. I sold my PUTS a few hours later at a nice profit as TBT tanked as a result of the strong 2.5 BTC on the 30 year auction.

For full disclosure: I still remain short treasuries over the long term. TBT is one of the holdings in my long term portfolio.

I continue to avoid trading this market. If you want to put positions on at this point you almost have to think like a criminal and play the bull tape. I also advise getting in and out quick because the stock market has once agin become a bubble for the 3rd time in 10 years. P/E's are once again insanely overvalued. Some forecasters have P/E's at over 100x earnings at this point.

We all know what happens to market bubbles folks. They often pop when you least expect it, and the resulting drop tends to be violent and very painful. If you go long be nimble.

Deutsche Bank Economist: The Exit Strategy Will Be Painful

Deutsche's chief economist Norbert Walter thinks the exit out of this stimulus by the Fed is going to be extremely ugly. I strongly advise you to watch this video. Norbert hits a home run here as far as I am concerned:






My Take:

I loved this guys take on this. He sees a triple U shaped recovery as the economic world works through a series of ticking time bombs that are unavoidable at this point as a result of spending so much money that nobody has.

Norbert also warns of a currency crisis via the US Dollar if one or all of the BRIC's lose confidence in our ability to dig out of our deficits. I couldn't agree more. Lets face it folks:

THE FED HAS CREATED A MULTI TRILLION DOLLAR NIGHTMARE AS A RESULT OF BAILING OUT AMERICA!

How in the hell are we ever going to pay this money back? How can the Fed create an exit strategy when so many parts of our economy are insolvent or bankrupt? I PERSONALLY DON'T SEE AN EXIT STRATEGY HERE WITHOUT CREATING A DEPRESSION!

The problem here folks is if we don't have an exit strategy then the dollar is going to crash as we continue to dig ourselves deeper into debt as more and more companies need to be saved.

Norbert explained above that if the currency collapses, the government is going to be forced to raise rates in order to find buyers for our debt. This will absolutely destroy the banks and the housing market. If these two go down the crapper, the rest of the economy will most assuredly follow.

The reality here is this:

THE GOVERNMENT CAN ONLY BE THE BUYER OF LAST RESORT FOR SO LONG BEFORE IT BANKRUPTS ITSELF!

The economy must recover and the consumer must start to consume once again in order for the Fed to have a viable exit strategy. At this point, we so zero signs of this happening:

Foreclosures are still rising at a record pace:

"WASHINGTON (AP) -- The number of U.S. households on the verge of losing their homes rose 7 percent from June to July, as the escalating foreclosure crisis continued to outpace government efforts to limit the damage.

Foreclosure filings were up 32 percent from the same month last year, RealtyTrac Inc. said Thursday. More than 360,000 households, or one in every 355 homes, received a foreclosure-related notice, such as a notice of default or trustee's sale. That's the highest monthly level since the foreclosure-listing firm began publishing the data more than four years ago.

Banks repossessed more than 87,000 homes in July, up from about 79,000 homes a month earlier."

And the consumer continues to not consume:

"U.S. retail sales fell 0.1 percent in July, after gaining a revised 0.8 percent the prior month, the Commerce Department said in Washington. The median forecast of 76 economists in a Bloomberg News survey was for an increase of 0.8 percent. The Standard & Poor’s 500 Index fluctuated, swinging between a 0.7 percent gain and 0.5 percent loss."

The Bottom Line

As you can see above, the economy has not turned like the bulls expected it to. The consumer number was horrendous and I see no reason why the trend won't continue.

Jobless claims were also back up again this week as companies continue to shred jobs. This will only put more pressure on the consumer as they continue to fold like a tent.

The reality here folks is there is no exit strategy that does not result in the worst depression seen since the 1930's. My fear is it could be even worse than what was seen in the '30's because the size of the deficit is simply mine boggling compared to any other time in history.

Despite the obvious evidence that their policy is failing miserably, the Fed continues to try and reflate the debt bubble.

When are they gonna realize that bubbles don't reflate? Ben needs to pickup a history book on bubbles and then start thinking of an exit strategy that results in the least amount of economic pain that is possible.

Delaying an economic reset will only make it hurt that much more when the economy inevitably collapses.

9 comments:

getyourselfconnected said...

Jeff,
will rea after 1st quarter of game.

CT,
left a comment on your post.

getyourselfconnected said...

typo, rea=read

CT-Hilltopper said...

Jeff.

I don't know what to think anymore.

I, like you, have been making playing in the market that are easy in. easy out, then I take my money and run.

First Cash for Clunkers, now Cash for Clothes, Cash for Houses? Where in the hell does it all end? I'm beyond disgusted with it all, yet it just keeps happening over and over.

jeff said...

CT

The bond market should put an end to it at some point.

I share your frustrations! It's all just so ridiculous.

The Fed won't go down without a fight.

CT-Hilltopper said...

I loved your comment on my blog Jeff.

That might be the one thing that would inspire me to blog more - a Cash for Bloggers program.

I wont hold my breath on that one either, just like on my Cash for CT program. LOL

Jeff said...

CT

I want my bailout too!

getyourselfconnected said...

cash for bloggers is great, but I fear they would want certain content for the pay, and I am not for sale. Well, 6 figures maybe, but other than that I am principled!!!

Peter said...

How do we get out of this mess???? We don't. Every day that conclusion gets reinforced in my mind.

I am officially stating on your blog that the USA is a failed state. Our system of government is broken and can not be fixed. We are now governed by a Fascist Oligopoly. Special interest and corruption are the only game in town.

Quite simply put, how can our country ever repay the $80 trillion in debt and SS/Medicare we owe? It is not feasible.

The only way to get out of this mess is have the system collapse and start over. This is not like the Great Depression because during the GD we were actually a productive country, we had manufacturing to fall back on, we had the tail wind of being the main beneficiary of WWI that left the old powers in ruin. Today we are on the other side of that equation.

Furthermore, working against us to fix this problem in a productive manner is that our government has created an eternal underclass that expects the government to provide for them. Add to that the vast swath of our population that is ignorant to what is going on other than who is in the finals of American Idol. This creates a situation where we can not get a large enough majority of citizens to stop this mess in its tracks.

The people are protesting and our elected leaders are scoffing at us. The media is doing its best to portray American citizens protesting as if they are the sheep. Then when ACORN pays people to protest, buses them into town halls at 6am to get all the seats, it is ignored. How long will the Americans that count, those paying taxes, put up with this type of treatment? How long before we have a 100,000 man march somewhere and have another 20,000 paid union goons opposing them. I'm sure nothing bad could happen from that. I doubt it will be long before the media is the first casualty of this. I can foresee reporters not willing to go near protesters for fear of their safety. Between the media and union goons Obama's fascist minions have created the new Brown Shirts.

Every day I am more and more worried that this is going to turn violent. Obama's union goons are now starting trouble at the town hall meetings. But my real fear of violence is that this dependent underclass will become violent when the government eventually can not supply them with what they were promised and expect. How long before the inner cities become war zones?

jeff said...

Peter

I share your concerns.

Great rant. Everyone is frustrated as we all watch our country go down the tubes.

I agree that we need a system overhaul.

We saw lots of bad news today. Consumer sentiment tanked.

LArge bank failure. Equities finally took notice and dropped sharply.

Raise some cash and hang in there man.