Friday, July 3, 2009
I just wanted to hop on real quick and share this interview from David Tice who is the founder of Prudent Bear Fund.
Some great thoughts here. Things will be very quiet on the THTB due to the holiday.
Happy July 4th to all of the Americans out there!
Thursday, July 2, 2009
Interesting day today eh? Stocks plunged as the jobs report came in much higher than expected. Unemployment rose to 9.5% as we lost another 467,000 jobs. Unemployment has basically doubled in the span of only one year.
Folks, I don't know how else to say this: The economy is collapsing at an unprecedented rate. I expect to see the unemployment rate at over 10% by the end of the summer. If you recall, the Fed's worse case scenario when they ran the stress tests on the banks was a 10.3% unemployment rate. I think we will easily be there by the fall. Perhaps this should have been their best case scenario? Idiots!
David Tice was just interviewed on Bloomberg. He predicts that unemployment will peak at somewhere between 12-15%. He also predicted that the US will enter into a depression. Yikes!
Nassim Taleb was on CNBC this morning talking about the failure of the financial system.
Taleb believes that between $40-70 TRILLION in debt must be cleared from the system in order ro recover.
He basically predicts that the system will fail because it has become too big and fragile. Like Fergusun said yesterday, he thinks that the Fed's solution to this debt problem is doomed.
Taleb and everyone else KNOWS that Bernanke's continued attempt to pump up the price of assets is not the solution and will result in a horrific failure. Nassim says Bernanke must accept and allow the inevitable deleveraging process of the financial system back down to what he calls "an equilibrium".
Ben will go down as a complete failure when the history books are written IMO.
Debt Debt Debt!
In my view, almost all of the great thinkers that don't have a personal incentive to keep stocks propped up have all come to the same conclusion. Our debt burden will prevent any recovery until its cleared!
Sadly, the government currently refuses to clear most of the the debt thats clogging the system. Until they are willing to do so, this financial crisis will continue to worsen. The problem is I believe the Fed has isn't confident that our fragile financial system can survive a massive debt default.
I am beginning to fear that our financial system WILL fail no matter which way we exit this crisis. Perhaps we need to start working on creating a new system that will never allow this to happen again. We need a system that controls risk, has full transparency, and strong fundamental regulation.
We currently see none of this in our current system. Our system is currently filled with thieves, zero transparency, and companies that are deemed "too big to fail".
If we don't change what we are doing, we are risking a catastrophe that could take several generations to fix.
Take a look at the forecasted debt to GDP ratio's if we continue on this path:
Ok, lets put this in perspective: Basically most of the ratings agencies declare a country bankrupt if their debt to GDP ratio hits 100%. The last time we hit these levels was after the massive run up in debt that was needed to fund WWII.
The chart above is conservative. Some believe that we may hit 100% of GDP within 5 or 10 years. Once this happens you can kiss our currency goodbye because no one will believe that we will ever pay be able this debt back at that point.
The real concern is a generation or two from now when the cost of health care and social security really start to ramp up to ridiculously unaffordable levels. The cost of supporting the retiring baby boomers is absolutely staggering, and it will haunt us for decades if we don't do something to fix it.
This model is totally UNSUSTAINABLE! We cannot survive as a country economically with 600% debt to GDP.
I think the jobs number today was a sobering wake up call for the bulls. We failed to see any follow through on last months promising improvement. The positive economic data seen in the past few months was nothing but a head fake. After a crash like we saw in Q4 '08 and Q1 of '09 we were bound to see some improvement in some areas. Nothing goes straight down.
The market was open an extra 15 minutes today due to technical glitches which was very bizarre. Stocks continued to sell off during this time.
Mole over at the Evil Speculator and others are much better sources for TA but let me give you my quick little take.
We firmly broke through 900 on the S&P. The next level of strong resistance is 880. I wouldn't be surprised to see us head down and test this. We closed at 896 today and sold off to 891 after hours.
If this doesn't hold things will get very interesting.
I have been getting more more bearish by the day the past two weeks as we continued to wander around in the low 900's. Today's break through could be significant. The bulls appear to now be on the defensive. Let's see if they decide to sell this rally and take profits.
If they do, things could turn real ugly fast.
Wednesday, July 1, 2009
Please watch this interview with Harvard professor Dr. Niall Ferguson.
Niall believes we are already in a depression. He also thinks that Bernanke is making a big mistake when he compares this financial crisis to The Great Depression of the 1930's.
Dr. Ferguson explains that this depression is different because we head into this one with huge deficits that we didn't have heading into the '30's nightmare. I see an inflationary disaster on the horizon a few years down the road.
He also laughs off the "green shoots" talk at the end of the interview.
Tuesday, June 30, 2009
I had to turn off CNBC several times as I travelled today because I just couldn't take the "green shoots" talk anymore. Thank god my Sirius has so many other channels that I can switch too, although my selection was limited today because Howard Stern is on vacation.
The desperation that I see everyday as I watch our bubble economy fall apart is beyond what I could ever have imagined.
Its going to take at least one generation before people ever trust Wall St again. I believe we will see the first signs of anger from the public when this bear market rally fades.
I say this because I see a lot of people struggling all around me.
Everyone that I know in sales says they have never felt so much pressure. Everyone of my contacts on Wall St says that things are deader than a doornail. There are no credit markets anymore. Securitizations are non existent. Trust me when I say this because one of my sources worked in the credit markets until his company literally evaporated in a matter of weeks when the credit markets seized up in 2006.
The crap the press is slinging around these days is shameful. The old "grass roots" reporting that helped keep our politicians honest has now been replaced by "green shoots" reporting. The airwaves are filled with false hopes and blatant lies. Our markets are now manipulated by the crooks on the street who created this financial catastrophe.
With one day left in my poll above, the majority of you say you won't touch these markets again until they are cleaned up. The miniscule volume seen daily in the markets pretty seems to be right in line with how people are feeling here on THTB.
What's dangerous about everyone leaving the market and sitting in cash is it shrinks the stock market. This makes it much easier to manipulate on a daily basis.
Markets tend to crash when they run dry of liquidity. This is what happened in 1987. Folks, I don't think we could have any less liquidity versus where we are trading at then we have right now. We have seen a 30+% bounce based on absolutely NOTHING!
The Russell is up 45%. This makes absolutely ZERO sense as we watch the consumer tank as they lose their jobs. We saw more evidence of this in the consumer numbers today.
In other news, it was reported on CNBC that the PPIP may only take about $50 billion off of the banks balance sheets. I laughed hard when I heard that one. What a joke! That's like a fly on an elephants ass! There are trillions of losses in the banking system that must me MARKED TO MARKET before we can even think about a recovery.
The PPIP is turning out to be nothing more then just another piece of hype.
The ONLY thing propping this market up is the Fed's balance sheet.
Making matters worse:
We have less and less transparency everyday when it comes to our accounting rules. When you hide the losses and ignore all of the rules that were designed to keep the markets honest, you are asking for a total disaster. There are practically no regulations in our capital markets at this point. Its all about hiding the losses and kicking the can down the road!
The bubble analysts love to point out that "Our banks are now profitable".
I say so what? They have been allowed to hide their trillions in losses so whats your point?
Do any of you on here want to own a stock that makes millions per quarter that has billions in bad debt? I already know your answer and oh by the way: No thanks, I'll pass as well.
The reason we are seeing so little transparency is because its becoming increasingly more difficult for the Fed's to hide this godawful economic disaster.
The Fed's Hoenig said it best today as he trashed the Ben's approach towards fixing this mess:
"WASHINGTON (MarketWatch) -- Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City, was critical of the government's "ad hoc" rescue efforts during the financial crisis, saying that the actions have institutionalized the concept of too-big-to fail in our economic system. Fed chief Ben Bernanke has argued that he, and others, acted like the emergency crew that saved a burning home before it destroys an entire neighborhood without asking whether the fire was started carelessly. In response, Hoenig asked "if the fire was started by a homeowner who ignored fire codes and smokes in bed, should the neighbors be required to rebuild the home at twice its original size at their expense?"
Here here Mr. Hoenig. Perhaps you can speak up and try and talk some sense into your counterparts at the next Fed meeting.
I don't know how this will all end folks. All I know is it's going to be very painful. We cannot hide the skeletons in our closet forever.
Plug your ears and ignore all of the recovery talk. Things are bad and getting worse.
Monday, June 29, 2009
Before I get started tonight, take a look at this discussion from CNBC this morning around market manipulation. I was pleasantly surprised that this was discussed in such detail. The market commentators almost talk as if its a foregone conclusion that the Fed is pumping up the markets via the banks.
A hat tip to Itulip for the charts. Now before I get into this let me start off by saying that I am not entirely sold on this thesis. However, hyperinflation is increasingly becoming a formidable threat unless the Fed changes its ways.
Inflation/Deflation is going to come down to one question here folks: How does the Fed react when this debt bubble collapses? The collapse of the debt bubble is the one variable that WILL happen at some point. We simply don't have the money to service the interest payments on the trillions in debt we have built up over the past 25 years.
We will go boom. The question is whats next?
Argentina faced a very similar crisis earlier this decade. Unemployment soared to 20% by 2001 and peaked at 24% in 2002. The government reacted with a large spending plan just like we saw here. The government's debt load eventually began to pressure the currency as its creditors started to doubt whether or not the country had the ability to pay back its debts.
As the deficits grew and grew, eventually the currency violently collapsed and dropped in value by 73% in a matter of months as the world lost confidence in Argentina's Peso:
You would think with 20% unemployment, Argentina would have seen a massive deflationary spiral like we saw during The Great Depression. If the government had approached Argentina's crisis with a proper fiscally sound policy response in the form of increased spending(to a point!) from the government, they most likely would have just seen deflation.
Sadly, the government chose the helicopter route and paid for it dearly as the whole country collapsed.
All bets are off if your turn yourself into a bailout nation and spend more money then you can ever payback. As you can see below, the world seems to have taken a much different approach this go around then we did during the 1930's.
It's eerily similiar to the Argentina's approach:
As you can see above, in the 1930's we increased our spending but only to a point. Ben believes this less agressive reponse by the Fed is where the mistakes were made during The Great Depression. As a result, this go around we have decided to throw money out of helicopters globally in an attempt to flood the system with trillions in liquidity.
As a result, Inflation should become more of a threat this go around because the Fed has been aggressively spending since the start of this crisis. Deflation ruled throughout the 1930's. However, inflation did tick up a bit towards the end as we began to run large deficits.
CPI actually dropped to -4%(deflation) at one point as unemployment soared to 20%. However, once the currency collapsed inflation soared a whopping 120% in just a matter of months! Prices screamed higher as a result because no one believed the Peso was worth the paper it was printed on because the government had spent themselves into default.
Now they say our situation is different over here(Gee..Think I have heard that line before) because the US dollar is the world's currency. As a result, many of the pros think the US dollar could never collapse. I'm sorry folks but I don't know if I buy this.
We are now TRILLIONS in debt. I don't see how we ever possibly pay it back without destroying this country economically. We must stop spending HERE AND NOW in order to have a shot.
The risk that we run by carrying these massive deficits is that the world may begin to lose CONFIDENCE in our dollar. They may decide creating an alternative like a basket of the world's currencies may be best in the long run. We are already seeing signs that the world is losing confidence in our dollar...BRIC summit anyone? Folks, If the world bails, the dollar just might become the new Yen.
Its pretty frightening when you look at the data used to measure our fiscal health. I mean just look at how ridiculous bank borrowing from the Federal Reserve has gotten in the past couple years versus history. This is a fiscal nightmare!:
I don't see how we avoid a bout of inflation with all of this money floating around. My concern is the Fed can't pull this liquidity because the economy will collapse almost immediately as unemployment soars past 10%.
This means the Fed is basically stuck between a rock and a hard place. If they pull liquidity, rates go up and an already deeply damaged economy blows up. If the Fed doesn't pull liquidity and continues to flood the system with money, we run the severe risk of seeing inflation like we've never seen before. We will also run the risk of collapsing our currency which then puts hyperinflation on the table.
This is too tough a call in my opinion. The Fed is basically screwed either way. Inflating out of debts has historically been seen more often then deflation. My common sense side says deflation prevails, but i cannot be more certain until the Fed proves to me that they will pull liquidity and show a willingness to allow things to fail. I have seen no signs of this to date.
As a result, diversification is a MUST here IMO. I can't stress that enough. I am not totally sold on inflation or deflation. Prepare for both. This means owning hard assets to hedge against inflation. Shorting stocks, holding dollars, and paying off your debts is the best way to protect yourself from deflation.
I pray that deflation prevails because I don't think anyone in this country is prepared for inflation. We are a nation of debt slaves that's totally broke. If prices go up as a result of catastrophic inflation, social chaos will be right around the corner.
Sunday, June 28, 2009
Today I wanted to go back in history and laugh at how ridiculous CNBC and Jim Cramer are.
The quotes here from Jim Cramer here are just classic. Keep in mind that the DOW was at 13,000 as Cramer screamed about the Fed's hesitance to cut interest rates.
Cramer on Bear Stearns negative press releases: "Never explain, never complain" HA! Great strategy: No transparency=broke investors in this case.
Cramer: "I like Bear Stearns very much" How did that work out? The stock was at $106 when he said this. The rest is history.
Cramer: "I mean the DOW can rally. We've seen the DOW rally". Hehe.. Really? From 13,000? Nice call as we sit here in the 8's. How did that work out for you Jim?
Cramer: "He(Ben) has no idea what it's like out there! He has NO IDEA! He has NO IDEA!". My people have been in this business for 25 years and their losing their jobs and these firms are going to go out of business and he's nuts their nuts! THEY KNOW NOTHING!"
Translation: My people have been robbing the public for 25 years and these firms are going to go out of business because they leveraged themselves at 40-1. Please bail us out via lower rates so we can continue to rob the American public at the expense of the taxpayer.
Cramer on the credit markets: "Oh we have Armageddon. We have Armageddon in the fixed income markets."
Oh really Jim? What do we have now in the fixed income markets now that we are selling hundreds of billions of treasuries each week and quantitatively easing in a desperate attempt to keep to keep mortgage rates low? Is this Armageddon X 5?
Cramer: "You can't get a home loan out there unless your rich like me". HA! Seems to me like anyone with a pulse can still get a loan via FHA. Yes lending standards are tightening but the government continues to lend irresponsibly.
The pigmen desperately ask Cramer for help by asking "What are you gonna do about about it? Are you gonna help us?".
OK this in my view throws the journalistic integrity of CNBC right out the window. It's blatantly obvious that Cramer is a puppet for the oligarchs who need a figure head that will speak up for the poor billionaire thieves that stole our money and our future.
This is why CNBC should be completely ignored when you are looking for legitimate news sources around the financial markets.
I throw up every time I listen to this video. Cramer looks like a big crybaby who is throwing a temper tantrum as he watches the whole profitable housing fraud go down the tubes.
Jim and his Wall St cronies successfully pressured the Fed into dropping rates and creating lending programs that our children will be stuck paying off for generations.
The DOW is down almost 40% since these new programs have been implemented by the Fed. What's most disgusting about this whole 2007 charade is this asshat still promotes this embarrassment on his show proudly thinking he did the "right thing" and woke up Ben Bernake.
Ummm....Wrong Jim. All you did was help create the bailout mentality in Washington that will eventually destroy this country economically.
Congrats Mr. Cramer. You helped out your billionaire buddies at the expense of the middle class who are struggling to make ends meet as they lose their jobs by the millions.
But hey don't feel guilty: You saved your billionaire buddies. I mean god forbid they become millionaires because of this crisis.
Cramer: You are the one that should be ashamed of yourself not Mr. Poole.