Thursday, March 17, 2011

Tipping Point for the US Dollar?

Watched some great tech tickers today:

Which would you prefer? A 77% tax increase or a 40% reduction in federal spending.  According to BU's Kotlikoff these are the only solutions to our deficit issues:

Dollar Tipping Point?

Jim Rogers thinks so and based on today's price action you have to wonder if it's over:

Quick Take:

Today's price action in the dollar is not good folks.  The dollar should be rallying hard right now based on all of the geopolitical chaos we are seeing in the world.  It's becoming more clear with each trading day that we are no longer viewed as a "safe haven"

The signs of a collapse in the dollar are already being seen when you look real close at what the big boys are doing.

When people like PIMCO's Bill Gross sells all of his treasury holdings that are priced in USD's it's time to get nervous.

The fact that the dollar is free falling right now is a very ominous sign.  Let's hope this isn't the beginning of the end.

Kotlikoff nailed it in the first video.  We are using Enron accounting rules to run this country and we all know how well that worked out.  The harsh reality here is this country is doomed unless we take the Draconian measures that are described up above.

It's time to stop all of the games before it's too late.  Think hyperinflation can't happen here?  Look up above and think again.

That's it for now.  Time to drink lots of green beer and forget about the harsh realities of our economic nightmare.

Wednesday, March 16, 2011

Yen Soars After Hours as the Global Economic/Political Chaos Intensifies

They always say:  Leverage is a bitch when it goes against you.   Just take a look at the Yen after hours if you want to see what it can lead to:

My Take:

Before I get to the leverage point let me point out that the Nikkei futures are down over 1000 points before the open(that is if they decide to trade today).  Rumors have been flying around that the Nikkei might shut down for the rest of the week.


All hell essentially broke loose after the Yen broke 80 against the dollar.  This is the first time the Yen has seen this level since 1995.  When it broke firmly through 79 it almost immediately triggered a violent unwind as seen in the chart above.

After hours the Yen SOARED to a whopping 76.39 before pulling back into the 78 area.  My guess is someone(hedge fund perhaps) likely was liquidated after today's trade.

Currencies can be leveraged 100-1 so it doesn't take much of a move to literally wipe out your capital when you are on the wrong side of a violent move in currencies.  This move after hours was literally breathtaking towatch.  We seem to be rallying back as I type here.

The Bottom Line

My posts are going to be brief and to the point in the near term following this one because things are happening so quickly.  

US futures are down again sharply once again after hours following the move in the Yen.  This is a disaster scenario for the Japanese economy because the soaring Yen makes their exports much more expensive.  Japan is EXTREMELY dependant on their exports...Toyota, Honda, Sony, Hitachi anyone??  The cost of imports soars as their currency rises.

At this rate you will be able to buy two Mercedes for the cost of a Toyota 1 month from now!

Folks, things are bad and getting worse.  I am starting to get concerned that we might see some panic selling in the oncoming days.  The Middle East is spiralling out of control, Japan is an absolute mess, and the economic data coming out of the US looks awful.

The housing starts "y on y" were the worst numbers seen since 1984, and the PPI came in smoking hot at a 1.6% increase versus the .7 that was expected.  Making matters worse is the fact that our government is in danger of shutting down because Congress cannot come up with a budget. 

My advice?  Put yourself mainly in cash and ride out this frightening storm.  The "buy the dip" suckers have gotten their teeth kicked in since this crisis started.

The biggest shame here in my view is Japan will be blamed for creating this economic crisis.  The reality here is the crisis was caused by the same crap that put us in the soup back in 2008.   It's easy money and highly leveraged gambling (not earthquakes) that got us here.

You should blame the bubble blowing Fed and their printing press for creating this mess.  Japan was the trigger not the cause.

Don't get me wrong, there is no doubt that the Japanese crisis would have hurt the global economy in either scenario.  However, risk taking and leverage are what makes these corrections so much more violent and painful than they would be if this extreme speculation was taken out of the system.

The way I see it hings are just getting started folks.  Expect more aftershocks(and no I am not talking about ones that are created by earthquakes).   Why?  Because our speculative quants can't handle these economic shocks.

The trading robots weren't prepared to handle the Black Swan of "subprime" back in 2008, and they aren't prepared to handle the "Japanese" Swan either.  As a result, many quants/hedge funds likely just got caught with their pants down just like they did when thehousing bubble came crashing down.  

The Yen trade after hours is a prelude of things to come IMO.

What keeps me up at night about this crisis is it's going to cause the bursting of a much larger bubble.   The bubble that ends up popping this go around will be much worse than 2008 because it's a broad based credit bubble.  Unlike housing, EVERYONE is involved in this one including governments.

There is only one outcome the way I see it.  The "easy money inflation genie" is about to be released  and it's going to wreak havoc on our society.  It's already stared, and I don't think there is any governmental policy that can stop it.  The proper response here would be to raise rates, but this is not an option for us right now because it would take down the entire banking system.

As a result, the only other option is for the government to print dollars in order to pay our enormous debt load which is about to be further burdened as we spend enourmous amounts of money bailing out Japan.  

This will lead to catastrophic inflation down the road.  I don't see any other way out.  Please be very careful right now.  Things are happening on an unprecedented pace.  Protect your investments the best you can and prepare to ride out this horrific economic storm.  

Tuesday, March 15, 2011

Show me the Money!

It's hard to make sense of the markets following the unprecedented events we are witnessing in the world today.

I can't help but think of the video below as I watch the BoJ respond to their crisis by turning on the printing presses:

"The central bank, for its part, eased its policy on Monday by doubling to 10 trillion yen a fund earmarked for purchases of assets such as government and corporate bonds in hopes that together with money market cash injections will improve sentiment, since it lacks the authority to directly buy shares to prop up prices.

Under the scheme, the central bank can buy exchange-traded funds, or trust funds investing in stocks, but the money set aside for such purchases is far too small to make a sizable impact on Japan's stock market."

Quick Take:

Greattttt...Now we have two drunken central banks dropping money out of helicopters.

I don't blame the Bank of Japan for taking this approach.  They had no choice.  What worries me is Japan's 200% debt versus GDP was already twice as bad as the USA's fiscal situation before the quake.  The cost of cleaning up this disaster is going to make this number considerably worse.. 

My question is how can Japan afford to rebuild??  As Jerry Maguire famously says above..."Show Me The Money!".   We already know the answer to this one...The money simply isn't there but one has to ask does it matter anymore?

It seems as if no country is held accountable for their spending by the bond market .  I guess the PIIGS have to some extent but that's about it.  Everyone else is allowed to spend money that they don't have without any consequences.

The Bottom Line

At some point the bond market will hold these insolvent governments accountable.  If they don't then inflation is going to continue to rear it's ugly head and create more chaos around the world.  We got our first glimpse of it in the Middle East.

Next up is Europe and the USA.  If you've filled up your gas tank in the past week you have already gotten a wiff of it.  Japan will likely get a pass for awhile, but I can't help but think they are about to experience some type of inflationary or hyperinflationary event down the road.

The inflation genie was placed temporarily back in the bottle thanks to the horrifying events in Japan.  Commodity prices have pulled back as the world's 3rd largest economy(and third largest user of oil) experiences a collapse in demand.

Don't expect this to last.  In fact, as Japan starts to rebuild over the next year I expect oil prices to soar as demand for oil sky rockets.  It takes lots of energy to rebuild a country, and we are about to head into the oil peak demand months of summer.

I wouldn't be surprised to see $5 gas as we head into June as a result of the events that have taken place in the past week.  If the Fed decides to continue QE3 during this time then gas prices could get worse if the dollar falls.

Enjoy the break in prices as Japan get it's act in order.  The way I see it we are in the eye of a Category 5 inflationary hurricane, and we are about to head into the back of the storm as we head into summer.

Monday, March 14, 2011


I'm sorry for being quiet today folks.  Times like these simply aren't about the markets.

My heart goes out to the Japanese people.  I can't imagine witnessing what you see below.

US futures are plummeting as Japan attempts to prevent a nuclear panic.  The Nikkei is now down over 20% in the two days since this crisis hit.

That's all I have to say right now because I am deeply saddened by what is going on.  Japan was already struggling with a 200% debt to GDP ratio before the earthquake hit.  Let's hope this crisis doesn't put them down for the count economically.

I suggest everyone donate to the Red Cross if they have the means to do so. 

My thoughts and prayers are with the Japanese people.