Friday, March 5, 2010

Elizabeth Warren Speaks!

Elizabeth hits one out of the park here. I couldn't agree more. Make sure you listen to the whole thing.

Without the middle class there will be no recovery.

Tuesday, March 2, 2010

The Greece Fiscal Crisis: Throwing Stones at Glass Houses?

When I look at the Greece fiscal crisis I have to ask myself: Are any of us in any better fiscal shape? My conclusion is we are nothing but a bunch of hypocrites!

Lets take a look at the Debt vs. GDP ratios of the world's larger economies according to the Wall Street Journal:

My Take:

Ummm....And we are all different from the Greeks how? Greece's debt versus GDP sits at a shade over 125% versus the USA's near 100% ratio.

Japan takes the cake at a 200% debt load versus GDP. Congrats to the Japanese!

My point here is the Greeks are not in that much worse shape than any other westernized economy.

The reason the Greek crisis is so rapidly intensifying is they don't have a currency that they can devalue in order to help inflate out of their debt. This as a result has increased the perception of the risk that Greece could possibly default. The result of this has made it very costly for Greece to sell bonds in order to fund itself.

Japan would be toast right now if they were in the same situation with a currency like the Euro that they couldn't manipulate.

In a nutshell, Greece is too small to fit into the "too big to fail camp" and is being held hostage by the uninflatable Euro. You could call them the Lehman Bothers of potential sovereign defaults.

What's amusing right now is watching the central banks in the UK and Japan scrambling to not become the next Greece. The British Pound was destroyed today as some speculators believe that England may be next as they continue to suffocate in their own debt.

Folks, let's face it, the sad reality here is we are all a bunch of "Greece's".

Claiming that you are in better fiscal shape here in the USA when your governent debt is 90% vs. GDP versus the 130% debt vs. GDP ratio in Greece is like saying your are at a lower risk of having a heart attack when you are 290lbs versus being 330lbs!

Any sensible doctor would tell you that as a result of being obese, both patients are at a much greater risk of dropping dead from an MI!

The Bottom Line

My big concern regarding the Greece crisis is that investors begin to panic over the sovereign debt worries of several countries all around the world. This could potentially trigger a wild fire as the world realizes that all of the modern economies minus China have the same problem.

The subprime crisis is a good example of watching how one tiny domino can make them all come tumbling down. If the debt spreads begin to blow out on the sovereign debt of several countries like the spreads blew out here in the US with MBS's back in 2008 then we are going to see one hell of a fiscal Tidal Wave!

The dollar continues to hold its gains versus the Euro as we continue to hold our "safe haven" status. My question is why? We are in no better shape then they are.

I mean just look at what we are doing here in the US as this crisis deepens: We continue to spend ourselves into oblivion! The government has shown no signs of slowing down. Just look at the re-emergence of national health care reform in the past few weeks.

This drives me absolutely crazy! Rome is burning and this is how Washington reacts.

Has anyone in Washington taken notice that tax receipts have fallen off a cliff? Some states are reporting a 30% dropoff! Obama's response? Let's spend a trillion more on health care(hand slap to my forehead).

Why don't these people in Washington get it? BTW, I blame the Republicans just as much as the Democrats when it comes to our Ponzi spending.

I am going to make a prediction here. Two years from now I believe the Greeks will have a better debt vs. GDP ratio than the US because Europe will force them to clean up their act.

If you are playing the markets be careful trading currencies right now. I still maintain that there will be a watershed moment where the world loses faith in all currencies. Notice that gold has started to rise again as the concerns around the world's fiscal status continue to rise.

Now does this mean I believe that all currencies are doomed? No. However, in order for investors to have faith in our currency down the road, we will be forced to dramatically cut spending and balance our budget which will then trigger an even more brutal depression than what are are seeing today.

As a result of all of the insanity in the markets, I believe that investment hedges to currencies will continue to emerge in energy, commodities, and cheap infrastructure in case TSHTF. If you question this belief, then ask yourself why Warren Buffet took the majority of his cash position and threw it all into a railroad.

Natural Gas

My alternative long term play to gold is natural gas. Keep in mind here folks that when I say long term I mean long term as in lock it up and throw away the key.

The way I see it, as financial desperation and a lack of jobs sets in as our fiscal crisis intensifies, Obama will eventually turn to natural gas.

I have done some research in this area and the amount of jobs this could create is stunning(I have seen the numbers). On top of that, it gives us the opportunity to get off of our expensive oil addiction with a much cheaper fuel alternative that we have huge abundances of.

The switch over to natural gas cars is not difficult. In fact its actually pretty easy. The one downside is the lack of infrastructure but this will eventually be worked out.

Natural Gas has run up a tad here so I would wait for warmer temperatures and a pullback before you jump in. I am still waiting for a lower entry.

This investment could take a long time to payoff but in my view its a no brainer within the next 5-10 years.

I will close with one last thought on natural gas. Exxon and its hundreds of billions in cash reserves has made only 1 aquisition since 1999. What did they buy? A natural gas company for $30 billion.

Disclosure: Long gold via GLD. No Natural Gas holdings at the time this article was published.