Thursday, October 1, 2009

Life is Short

We can always dance as we watch our economy go down the tubes. I write a lot of gloom and doom on here folks and unfortunately I think things are beginning to fall apart once again. The economic data was terrible today.

Despite all of this, I want all of you to know I am still hopeful for the future.

I am very confident we will survive this crisis, and I think it's important that we all continue to try and keep some type of positive attitude as we muddle through this.

You can only control so much of what happens in life and it's easy to forget this and get caught up in our economic collapse.

I thought you all might enjoy something a little more positive on here for a change after such a crappy day in the markets.

I got a kick out of this:

Tuesday, September 29, 2009

Can We Ever Pay Off Our National Debt?

Hello All

As I sit here and watch the dollar tank once again tonight overseas, I wonder if the market is slowly coming to the conclusion that the USA will never be able to pay back the trillions of dollars that they have borrowed.

I really thought about yesterday's Jim Rickards interview on bubblevision today. Folks, I don't see how we escape this crisis without a dollar devaluation of 50% or so. This is the only way we will ever be able to pay off the ugly debts that we have accumulated.

So what are the unintended consequences of such actions? I'll be damned if I know. Inflation is an obvious answer but the social consequences would not be known until such an event occurred.

We are in uncharted waters. I can't make any sense of the stock market or the bond market at this stage. The fraud and manipulation at this point is unprecedented.

What's amazing is the banks continue to take advantage of the destabilization of our economy. I am beginning to believe that Wall St doesn't want to see a recovery because the chaos is creating so many profitable opportunities.

If we see an economic recovery, interest rates must rise, and this would be catastrophic to housing(higher lending rates) and thus the banks balance sheets.

Here is a nice example of why chaos is good for Wall St:

There is another "old school" bond game that's going on right now. The banks are borrowing short from the Fed at next to nothing(2% or so) and then buying the long end of the yield curve(4% or so) and pocketing the spread. This is why you have seen the long end of the bond market collapse over the past several weeks.

This is a beautiful game for the street for now but things can change in a hurry according to the pros:

An old bond trader friend of mine explained to me that he watched the same thing in the late '70's. It was a beautiful game while it lasted. The problem is they all got caught with their pants down when Volcker took rates to 12%.

Those long end bonds with a 6 or 7% yield from the '70's don't look so hot when it costs 12% to borrow a few years later!

You see folks, these games can only go on for so long before drastic actions must be taken in order to prevent ourselves from blowing up. When the party is over and rates soar(which I believe is right around the corner), the primary dealers and others holding these bonds are going to get killed.

One potential Black Swan in the bond market is the "audit the Fed" bill that's flying through Congress right now. The Fed is already screaming fire as they try and prevent this bill from going through.

If this passes, the Fed will be exposed for what they are: A fraudulent bunch of broke gangsters that are holding a bunch of worthless paper in an attempt to bailout their banking buddies. The Fed is a sham and everyone knows it.

I expect the rhetoric out of the Fed to soar as this bill gets closer to passage. It's already started. You can almost guarantee that they will warn us that such a move would threaten the whole financial system if this bill passes. I say bull****. We have been through much tougher times before. No one is too big to fail!!!! We will survive this crisis and move on.

The Fed however wants you to think the world will end if their balance sheet gets exposed. My questionn here is if they were legit then why would they be so resistant to an audit? Companies are audited all of the time! Their resistance to this bill proves their guilt IMO.

The Bottom Line:

The games never seem to end. Many of my contacts on the street are extremely skeptical of what's going on in the markets. A few see no way out for the Fed and the economy. In fact, I have never seen people from Wall St so bearish. They are usually a jolly group.

Many of them are now beginning to focus on how to profit from the collapse that seems almost impossible to avoid at this point.

The bulls own the market for now. Fundamentals don't matter when you are betting on a recovery. If the analyst's revise earnings down from .20 a share down to .05 on a company before earnings season and they come in at .10 it's a huge beat! Yeah ok, go ahead and tug the other one.

The mirage of Wall St continues but you need to wonder if their run is about over. A collapsing dollar and the Fed's response are what I am focusing on right now. If I had to guess, the Fed will do nothing with interest rates unless inflation really runs wild.

As a result, the metals are still the place to be long term. The street is beginning to realize that the only way we pay back our trillions in debt is by devaluing the currency.

The IMF will pick up our slack with a new currency in order to stabilize world trade as we clean up our mess by taking down the dollar in order to pay off our debt.

This is going to be a very painful experience for America.

Monday, September 28, 2009

Jim Rickard Nails it

Brilliant analysis here From Jim Rickard. this is about the only viable solution that I see to this economic nightmare.

A dollar devaluation is unavoidable at this point because we simply have dug ourselves too deep a hole. Get used to the term SDR(Special Drawing Rights). Here is a definition for those that are interested.

The IMF is being prepared to keep world trade stabilized via SDR's while we devalue our dollar by 50% in order to payoff debt.

IMO, Gold and other metals and commodities are a must hold as a hedge in preparation for this.

I can't embed this for some reason right now so here is the link:

Sunday, September 27, 2009

Fleckie Strikes again

Good Morning All

I am a big Bill Fleckenstein fan and I thought his most recent post was very insightful.

Bill recently attended a conference in NYC where the best and the brightest shared their world views on the economy.

The biggest star at the conference was legendary hedge fund manager John Paulson. IMO, this guy is the smartest guy on Wall St. He made billions betting against the subprime market in 2007.

The returns in his fund are simply breathtaking year after year. According to Bill, Mr. Paulson had some very bullish comments around gold:

"Paulson holds court I don't think I would shock anyone if I said that the day's headliner at the conference was Paulson (though the other speakers were equally fascinating to me). Everyone wants to know what he thinks because he made so much money on the subprime collapse. But it should be noted that he puts his pants on one leg at a time, too, and thus can be wrong like the rest of us.

After all, he wasn't that much more right about what was liable to happen than a handful of others, such as Grant and my friend I often refer to here as the Lord of the Dark Matter (who's quoted, for example, in "The trouble with techs right now" and "Will economy's green shoots wither?").

However, what Paulson did was to take his views and express them brilliantly,which may also have been a function of just how well he understood the situation. Thus, given Paulson's recent track record, those who have a bullish viewpoint on gold naturally want to know what he thinks.

In short, he believes that money printing by the government will ultimately lead to a good deal of inflation.

Parenthetically, while deflationary chatter certainly has the headlines and the upper hand regarding folks' opinions in the short run, I see quite a body of sharp investment minds coming to the conclusion that in a social democracy with a fiat currency, essentially all roads lead to inflation.

In any case, Paulson is convinced that gold will be a very good way to protect himself from the eventuality of currency debasement (i.e., inflation). He observed that if one thinks about gold in a three- or five-year time horizon (instead of hour to hour, day to day or week to week), the probability increases of gold being higher over time -- and, most likely, much higher.

I had not thought about gold from that point of view, but that is exactly right. Consequently, if folks have positions that are reasonably sized, it makes volatility -- especially when it's downward, as was the case last week -- much easier to accept. "

The Bottom Line

Food for thought. It appears that the things we own(housing, cars etc.) are dropping in value while things that we need(fuel, food) are becoming increasingly more expensive. This makes the inflation/deflation argument a tough sell for both sides.

This is hardly the recipe for a strong economic recovery. Let's not forget that we will also eventually be forced to deal with our soaring budget deficit. In short, this means much higher taxes for everyone. The politicians are lying when they say they will only tax the rich.

If we see the healthcare reform bill pass I predict the tax rate in this country will be 50%. Canada's tax rate is 51% in order to pay for this. Take a look at any of the westernized countries that have national healthcare and you will see a similar tax rate.

I advise everyone to read Bill's article. The mood at the conference he attended which included the best and the brightest was extremely bearish. My contacts on the street have been telling me the same thing.

Be careful with your money folks. Please diversify your nest egg in order to protect yourself from the nasty storm we are about to sail into.