« December 2010 | Main | February 2011 »
Posted at 04:12 PM | Permalink | Comments (0)
"Roughly speaking, the mess we are in is the worst since the 17th century financial collapse. Comparisons with the 1930’s are ludicrous. We’ve gone far beyond that. And, alas, the courage & political will to recognize the mess & act wisely to reverse gears, is absent in U.S. leadership, where the problems were hatched & where the rot is by far the deepest." -- Harry Schultz, in the final issue of his superb 'IHSL' which is ceasing publication after 45 years.
Dear All,
The recognition, as the 87 year old Harry Schultz observes -- that what we are in the midst of is not some garden variety cyclical downturn, is critical to properly approaching the allocation of capital for the next number of years and surviving the great debasement. It is perhaps not an overstatement to say that the greatest impediment to allocating your capital wisely may be your stockbroker or investment adviser. It is doubtful that she is any more capable of comprehending the significance of the structural economic dysfunction that exists than is anyone else in your life. Wall Streeters may understand investment cycles but they are entirely unprepared for the degree of upheaval that if Harry is correct, is the worst in at least three centuries. They carry the wrong playbook. You will likely be better served by searching Youtube or the likes of ted.com to access lectures by competent economic historians such as Niall Ferguson, who was featured in the January 6th post.
J.P.Morgan Chase reported "better than expected" earnings on Friday. The fact that the bank is the largest financial cesspool in history with $77.7 trillion in notional derivative value on its books (against $176 billion in shareholder equity -- a ratio of 441:1) that renders the company an insolvent zombie seems not to matter to most analysts -- and why should it? JPM has Too-Big-to-Care status. The Federal Reserve will backstop JPM's negative capital in perpetuity courtesy of US dollar holders. For JPMorgan Chase is no longer a privately functioning enterprise but rather a government entity masquerading as such. Since the financial crisis commenced the needle has barely budged on the exposure that JPM assigns to itself from its toxic derivative book, despite the fact that the financial world which it insures through that book has largely collapsed. Were JPM to increase its stated exposure by just one quarter of one percent of its derivative book's notional value it would more than wipe out the entirety of its shareholders' equity. Not to worry, not to care -- JPM's investment bankers are to receive an average payout of $369,651 for 2010 and the company said it is hoarding enough operating capital to soon increase its dividend. The U.S. Federal Reserve has effectively announced that JPM's balance sheet has no material relevance. Whatever is bad the Fed will eat -- whatever operating cash JPM can generate is free for the taking.
The spin that there is an economic recovery is complete fiction. Only Wall Street, which was backstopped and/or flooded with federal bailout funds that ensured the perpetuation of its obscene compensation machine, has experienced anything resembling a recovery.
Does this chart appear reflective of an improving economy to you?
60 percent of Americans do not have any excess funds on hand to meet emergencies, and 40 percent of credit card holders say they are paying only the minimum required payments on their credit cards. New consumer survey: More than half of all Americans living paycheck to paycheck
This is a trend in the U.S. that is as disturbing as any. History is unkind to gaping socio-economic schisms. Without a formidable middle-class everything is up for grabs and the arithmetic does not favor the 'haves.' TheTelegraph: Deepening crisis traps America's have-nots
While you were sleeping...A decade ago the Canadian dollar was worth as little as 65 US cents. Today a Canadian dollar will cost you about $1.01. The 'Loonie' as it is known is now trading at a slight premium to the U.S. dollar. Capital -- always agnostic, flows to where it feels safest and where it is best treated. The resource based Canadian economy is far healthier than that of the U.S. and its stock market has been strongly outperforming the U.S. equity markets. It's government's fiscal policies are by comparison -- conservative with lower corporate tax rates than in the U.S. Canada's banking sector is the strongest in the world and its unemployment rate is one third lower than U.S.' According to the Heritage Foundation, Canada ranks higher now in economic freedom than the United States. Heritage Foundation: Index of Economic Freedom
As discussed here in the Oct 22nd posting "Derivative Nation" this is huge and will not be swept under the rug. A showdown is coming and the ramifications -- however it is decided -- are not pretty. Reuters: Banks lose key foreclosure ruling in top Massachusetts court
Goldman Sachs is the largest insider trading operation in history. Only little people and female celebrities with cooking shows are prosecuted for insider trading. NYPost: John Crudele - NY Fed's 'Mr. Inside' Dudley flapping his gums"
It is an uncomfortable fact that sovereign nations that discharge their debts are historical rarities. The norm is that notes are refinanced until eventually there is default through currency debasement. "Despite the recent drama, we believe we have only seen the opening and second act...There is no absolutely safe sovereigns" TheTelegraph: Debt default fears will spread to US and Japan, warns Citigroup's Willem Buiter
The trend:
EconomicTimes: India, Iran mull over gold-for-oil now
Worth the read...
AlterNet: WikiLeaks' Most Terrifying Revelation -- Just How Much Our Government Lies to Us
Charles Hugh Smith: the U.S.O.F.C. -- If the Fraud Stops, the Financial System Collapses
Amy Chau provides a fascinating and blunt assesment of the striking cultural differences in parenting. One culture emphasizes achievement -- viewing self-esteem as its product. The other views self-esteem as the goal as well as predicate to achievement (the latter cultural platitude implying that taken to the extreme -- a nation of failures that feels good about itself is a success). WSJournal: Amy Chau - Why Chinese Mothers Are Superior
This is the best commentary I've read on the Arizona shooting and the shameful exploitation of the tragedy by media pundits and politicians. Giordano Bruno: The Giffords Shooting Changes Nothing
Regarding gold and silver...
Kudos to GATA and its esteemed constitutional lawyer, William J. Olson: Judge orders Fed to deliver gold records for her review
While the Indian appetite for gold and silver will continue as a strong driver of precious metal demand (Bloomberg/Businessweek: 2010 Gold Imports by India Likely Reached Record) it is China that is the game changer. Although it is the world's largest gold producer, China in October began allowing gold importation. It cannot keep up with its own demand as it encourages internal consumption. I cannot overemphasize how important a factor this will prove to be in driving the price to much higher levels. MyIris/India: Gold Council and ICBC launch first gold accumulation plan in China
Ultimately it will be the physical market that prevails: "Frankly, we are concerned about the illiquidity in the physical silver market," said Eric Sprott, Chief Investment Officer of Sprott Asset Management. "We believe the delays involved in the delivery of physical silver to the Trust highlight the disconnect that exists between the paper and physical markets for silver." TORONTO, Jan. 10 /CNW/ - Sprott Physical Silver Trust (NYSE ARCA: PSLV, TSX: PHS.U) Asset updates on the delivery status of silver bullion purchased
Sprott's physical gold and silver trusts put the emphasis on the "physical" through rigorous custodial and auditing procedures. At the Dahlman Rose Mining conference which I attended here in New York last week, Sprott Asset Management's David Franklin reiterated Eric Sprott's comments as to the continuing difficulty in acquiring silver bars for their trust. Without making the direct accusation, it was quite clear that he does not believe the ishares Silver Trust ETF (SLV) inflow reports of what are assumed by many to be physical silver into that much larger entity. Saying that he'd love someone to tell him whom to call to obtain some, Franklin wondered aloud precisely how it is that the considerably larger but custodially challenged SLV is able to do so. The circumstantial evidence continues to point to SLV having large paper derivative silver positions rather than what many of its misinformed investors undoubtedly believe is real silver. The same holds true of GLD and other precious metal ETF's which investors believe are fully backed by physical metal.
Use your own power of observation and keep your emotions on ice. Do not allow the short term market movements to distract you from the big picture. Above all, shun conventional investment advice.
"[T]he world has entered another period of upheaval in which the independent thinkers -- the searchers, skeptics and non-conformists -- become fabulously wealthy, while the herd becomes the government's lunch; there is no middle ground."-- Richard Maybury, U.S. & World Early Warning Report, Jan 2011
All the best,
Jeff
Posted at 10:21 AM | Permalink | Comments (0)
Dear All,
You wouldn't know from the talking financial heads, the stock market price action and the phony headline economic numbers that things have never been worse. Here is where rubber is actually meeting the road:
Gonzalo Lira: The Federal Reserve is purchasing over 60% of the Federal government deficit
Jan 5, 2011: U.S. Census Bureau Reports State Govt. Revenues Decline Nearly 31 Percent
The state, municipal and local govt. crisis we've discussed here for the past two years is reaching the breaking point. Churchill's quote at the top of this piece is referenced in Niall Ferguson's superb lecture linked herein. By Churchill's observation, the "right thing" is the point not at which the long sought judicious course is finally revealed, but rather the point at which having doggedly avoided it, there are no other paths remaining. So it is with governments. They have been dancing around the problem for years and the music has stopped.
One of the few analysts who both see reality and call a spade a spade: BusinessInsider: Meredith Whitney Getting Trashed Eight Ways To Sunday
Another of the very few analysts worth paying attention to, Howard Davidowitz discusses the debacle that is unfolding in retail real estate. Bloomberg: Davidowitz - "It's going to be the biggest retail change that we've ever seen."
In my last post I referred to US Treasuries as being a high risk/minimal reward proposition. Marc Faber is probably closer to the truth on this. Bloomberg: Faber Says Long -Term U.S. Treasuries 'Suicidal'
This is a back-door bailout and nothing less. What the Times story fails to mention is that Bank of America is being released of any liability on potential future claims relating to $127 billion in Countrywide loans. BOA is effectively settling for one cent on the dollar. Once again, the working people are bailing out bankers. BOA is simply incapable of absorbing the losses it is liable for. It is again being propped up and will continue to be through third party conduits such as the GSE's. They dare not call it a bailout though and the New York Times dare not report it as such. NYTimes: Bank of America Settles Fannie Mae and Freddie Mac Claims
Commenting on last week's decision by the People's Bank of China to raise interest rates 25 basis points, Yra Harris found the economic impact irrelevant but took note of the Chinese having flipped the west the bird:
"[T]he Chinese raised rates on Christmas so as to let the world know that the rules of the game are changing. The Asian economies have THROWN OFF THE YOKE OF ITS COLONIAL PAST AND COULD CARE LESS ABOUT THE NICETIES OF THE JUDEO-CHRISTIAN WORLD. The rate move was well-timed in that regard and the global powers should prepare for many more sea changes in long-held customs...Would the FED refrain from raising rates during the CHINESE NEW YEAR?"
The Baby Boom generation is now of retirement age. With unemployment exceeding 20% (the actual figure - not the official) and median retirement savings of $2,000., the middle class is going belly up. Social security is all they will have and with the retirement age sure to be lifted plus inflation roaring in the coming years, it will push many into poverty. With the phony CPI, the federal government is already depriving recipients of deserved cost of living adjustments. Social security payments in real terms are going to fall drastically. MyBudget360: 1 out of 3 Americans has zero dollars in a retirement account
I draw your attention to this lecture by economic historian Niall Ferguson, made available through the Australian Broadcasting Corporation. Skip the introduction. The lecture and follow-up Q & A will be an hour of your time well spent. I note Ferguson's underestimation of where gold is headed. Do not hold that against him -- his review of history is first-rate, made all the more enjoyable by his dry wit. "When all of your ordinary revenues are going on interest payments -- it is ladies and gentlemen, game over." Niall Ferguson: Empires on the Edge of Chaos
Here's an example of how America's schools have failed us. Ezra Klein, 26 is a columnist for the Washington Post, Newsweek, and a contributor to MSNBC. Although he sought to make a different point, Ezra said the following in this television interview: "[The U.S. Constitution] has no binding power on anything ...the issue with the Constitution is the text is confusing because it was written more than 100 years ago."
Now Ezra, the U.S. Constitution was written in 1787 and ratified two years later so it's older than you think. It is the legal infrastructure of our nation and the controlling document of all U.S. law. "No binding power"...Whatever are you talking about? Ezra's confusion might be somewhat mitigated had he taken what today passes for a basic high school civics course. Ezra serves as well as a glaring example of the deterioration of standards in establishment print and broadcast media. Breitbart.com: Washington Post staffer says U.S. Constitution 'has no binding power on anything'
The trend...
Posted at 07:43 PM | Permalink | Comments (0)