Friday, August 5, 2011
Interesting times we live in. The economies of Portugal, Ireland, Italy, Greece and Spain (PIIGS) have finally hit the wall. The Ponzi schemes their governments were running by borrowing money through selling bonds to then pay voters entitlements has ended as all such schemes do. They can’t sell enough bonds at a reasonable price to make payments on the ones they have already sold. That’s bad, but the worst part is that the banks are the ones holding the worthless debt. It’s kind of like the US banks holding mortgage loans from homeless people.
Today the European Central Bank (the Chinese turned them down) said that it would start buying the bonds if the governments in these countries only spend as much as they take in. This leads to two questions.
First, where is the ECB going to get the money. The two options are Germany and/or the printing press.
The second question pertains to the populations in these countries. When the government takes away the free health care or social security, or both, how are they going to react? What would happen in America if Social Security checks were cut in half? Multiply that by two and you have the European mindset. These people get 8 weeks of vacation every year. Italy takes August off.
The smaller countries are problems but Spain and Italy are ginormous problems. Their economies are in the trillion dollar range and not even Germany has that kind of money. The ECB was formed to combat inflation. That’s it. If they start printing money to bailout these countries you can assume that the financial system in Europe is without hope. Good bye Euro.
The European situation is illustrative for Americans in two regards.
First we will see how people who have been paid for their votes react when the politicians don’t hold up their end of the bargain. They might start trying to take what they feel like they’re owed from whomever has it. That’s called "political unrest”, or the seeds of anarchy if it matures.
Secondly, what if the Federal Reserve had to start buying California’s bonds or the city of Chicago’s debt? These guys have been running Ponzi schemes too. When the gig is up, are the people from states who have not lived so lavishly going to sit quietly by while their currency is devalued so these big spenders can be saved? I doubt it.
I find it incredible that nobody during the recent “debt limit” debate failed to point out the immoral proposition of selling bonds to pay off current investors. Bernie Madoff sits in prison for doing that. The US is going to hit the same wall Europe has their nose pushed up against right now. It’s just a matter of time, unavoidable and easy to predict.
Wednesday, June 8, 2011
Mid Year Prediction Review for 2011
The first of June brings the time to do a mid point check for my 2011 predictions made back in December. This can be a humbling experience but a necessary one. Let’s get to it. Below is a list of my prognostications and a brief comment or two:
- The financials, with Bank of America leading the way, will be the best preforming sector on the NYSE in 2011. This turned out to be a wrong headed prediction. The financials have under performed the market and Bank of America has been the worst of the lot. I thought the financials would be a safe haven since they are “too-big-to-fail”. I missed this prediction because I thought the “robo signing” issue was not that serious. Wrong. The under performance of the financials does underscore my main contention that the “strength” in the economy is a result of Fed action not economic fundamentals. This was a big miss, my biggest.
- Unemployment will rise to 11%. This has not happened yet but I’m not yielding quite yet. Back in December the talking heads were saying 400,000 per month job creation was right around the corner. They were definitely wrong about that as the jobs number for May was a measly 54,000. Whether or not I’m wrong is yet to be determined. I’ll stand pat on this one.
- Jim Demint will emerge as a front runner for the Republican presidential nomination. It may not happen but it is still a good idea. Is this field the best the Republicans, and by extension America, can offer?
- The Mexican government suspends the writ of amparo (Mexican hebeas corpus) in a last ditch effort to hunt down and destroy the drug cartels and avert complete anarchy. I may have missed this one but you never know.
- The state of California will end the year in dire need of a bail out. The state of California is in need of a bail out now, just not dire. By the end of the year this fruit will ripen and it’ll be dire.
- The Real Estate market will take its final leg down. Nailed this one.
- Merger and deal activity on Wall Street will have a record year. I was on the money here. The Linkedin, Facebook and ATT’s merger with T Mobile lead a very active deal sheet that only appears to be gaining momentum.
- House Republicans play politics and refuse to make any hard decisions preparing to take on Obama in 2012. Admittedly Paul Ryan took a step on the wild side and made a suggestion. I was wrong here.
- The European sovereign debt crisis continues to boil under the surface. Nailed this one too.
- Civil unrest in Europe will escalate dramatically. It hasn’t happened yet but just wait. By the end of the year this prognostication will come true in spades.
- The China story will take a different turn as its economy begins to overheat. This prediction is on the money. The Chinese central bank has raised rates several times in 2011 in an effort to cool this overheating economic juggernaut.
- The Korean peninsula will be reunited as the North Korean government collapses under the strain of China’s pressure and dissension within the military. Not yet, stay tuned. When the US economy turns down all sorts of things start happening.
- The Iranian’s will explode a nuclear devise or demonstrate a “dirty bomb” ballistic missile capability. Only time will tell.
- The war in Afghanistan fails. Since I have a step daughter deploying to Afghanistan this August this is no happy prediction to standby but I will. Obama will use “his” execution of Bin Laden as proof our mission is complete. The President has no stomach for the fight.
- The Obama administration will descend into chaos. Still percolating.
- The levels I predicted on the major indices were as follows:
S&P 500 950 - I’ll stand by this. It may be a little low, but maybe not. 50/50.
Dow Jones 10,000 This was a crazy prediction in December of 2009. Today the Dow will probably slip under 12,000 on its way to 10,000.
10 year US Treasury Yield 2.45% This was my most outrageous prediction. Everyone thought interest rate hikes were a forgone conclusion. The 10 year slipped under 3% yesterday to 2.96%. That leaves a long way to go and it may not fall to 2.45% but directionally I got this one right so far.
Spot Gold Price $2,300 Again directionally accurate. Gold was under $1,000 per ounce when this was published. The fear trade may take it to $2,300 but inflation will not.
GDP 2.5% The recent 1.8% growth rate was even worst than I had anticipated. That saying something considering the roar of this bear.
The America economy is in a serious, serious decline. The Obama administration's policies are akin to the medieval medical practice of bleeding the patient. When I hear the Fed Chairman and other administration officials predict increased growth for the remainder of the year it is the unmistakable sound of whistling in the dark. And it sure is dark.
Monday, January 17, 2011
Solutions for America
The meaning of a word can change over time. Take the word “liberal” for example. In the later part of the nineteenth century, the political term “liberal”, was used to describe a person fearful of concentrated power within a society. Nineteenth century “liberals” were particularly suspicious of the concentration of power in our government as well as the robber barons of the day.
Nineteenth century liberals believed that individual freedom (embodied by the number of choices available to the individual) was a prerequisite for the development of equality and better welfare for the populace. During the Great Depression liberalism came to be associated with a reliance upon the state for equality and a better general welfare. The new “liberal” put forth the notion that freedom was the result of equality and a better general welfare. The old “liberal” believed just the opposite. The old “liberal” insisted that freedom produced a better general welfare and greater equality.
The elusive remedy to America’s economic ills can be found in this irony of diction. As the word “liberal” morphed so did the collective American strategy for creating wealth. Bread lines of the 1930s allowed the Roosevelt administration to take responsibility for full employment into the purview of government policy (culminating in the 1946 Employment Act and the Federal Reserve’s new “full employment” mandate in 1977). No nineteenth century liberal worth his salt would have ever ceded such a role to a central authority.
Not so coincidentally, it was at this time in American history that the majority of our monetary freedoms were usurped by the federal government. Private ownership of gold was outlawed and the underpinnings of American enslavement were set in place. No greater control can a government have over a populace than control of its money.
Today, Republicans and Democrats alike, talk about “creating jobs” as if the phrase were taken directly from their oath of office. To gain a foothold on the road to recovery Americans must internalize the ludicrous, oxymoronic concept of legislation put forth as a “Jobs Creation Spending Bill”. Rejecting such fatally flawed perceptions and thought is not choosing a right political philosophy, it is to embrace the only tried and true solutions- the free enterprise system and individual freedom!
Freedom, not equality and general welfare, is the wellspring of prosperity. Every authority obtained by government is an erosion of individual freedom. There can be no individual freedom in the absence of economic freedom! Every role assumed by government limits individual choice, and thus individual freedom. Nineteenth century liberals would immediately recognize the economic enslavement that has so gradually robbed the American people of their personal and economic freedom.
As the vitriol surrounding the shooting in Arizona is endlessly examined by TV talking heads, the purveyors of the status quo smile in silent victory. The blatant attempt by the media to shame the ever-growing cry for American freedom must not dishearten true patriots but embolden them. The pessimism engendered by such a misdirected debate causes an ache in the soul of American freedom lovers that must be turned into greater resolve. The eternal words of Arizona’s favorite son, Barry Goldwater, “Extremism in the defense of liberty is no vise!” must carry the day for it is in these words that our path to freedom and a new economic prosperity lay.
The American politic must experience a fundamental change in the perception of government’s role in our society. The firm conviction must be that any function of government erodes individual freedom and, therefore, any expansion of government must evoke the same hatred accorded to the institution of slavery itself. While there is a legitimate function of government, the unnecessary expansion of its institutions is morally reprehensible.
America’s solution is clear. We must come to an understanding of the moral turpitude inherent in big government. Without this moral authority, government cannot be reigned in by legislation. America must step up and endure the hardships that result from decades of a licentious economic policy. Americans must be encouraged to save, not spend. The government must cut entitlement spending. Will the economy suffer? Absolutely, but the suffering is unavoidable and the longer we “kick the can down the road” the greater the suffering is going to be. When you’re in a hole the rational first step is to quit digging. It is the only moral course of action: End the enslavement of America now!