We are supposedly in the midst of recovery. So why would the following occur? On March 25, 2011, the International Monetary Fund activated a $580 billion crisis fund. Read it here. Also, why is the FDIC extending emergency insurance on bank accounts through the end of 2012? See it here.
When the weather is clear, you don't add storm watches and warnings unless you see a storm approaching. Nor should major banking institutions be adding programs to stabilize the financial system unless they see a significant probability of crisis and instability on the horizon.
This bit of news should be a warning. You need to have renewed vigilance in your financial affairs. If you haven't taken out insurance against the insolvency of the financial system (i.e. bought some physical gold and silver), I suggest you seriously consider it.
Acknowledgement: Jesse's Cafe Americain
Sunday, March 27, 2011
Saturday, March 12, 2011
How do we fix this?
Once again, this is another post I was working on during May 2010 and have updated with a few additional comments.
I'm sure you've gotten the picture by now. I am fed up with the lying, cheating and stealing by Washington and Wall Street. A lot of middle class America is fed up too. This is precisely why the Tea Party movement began. Americans get that they've been betrayed, and they want it fixed right now.
Update: The Tea Party has been co-opted by the political establishment. While some of the participants are genuinely advocating change, the elected representatives from the Tea Party are now being integrated into the DC's business-as-usual establishment. Tea Party supporters will be appeased with minor legislation, however, no meaningful change will result.
Unfortunately, I don't think most people understand the depth of the problems. I want to get to the root of the problem with people I trust, but where do you start?
On the side of the blog, I have provided some links to people and places I look for information on a regular basis. I don't necessarily subscribe to the views of these folks, but generally I find the information they provide is valuable, though at times their opinions and conclusions can be deeply flawed. I understand your time is valuable, but please educate yourself if you have the time. And while you are browsing, it is vital to use wisdom and discernment in order to let the facts speak louder than the opinions.
Welcome to the Wall Street Casino
I've been meaning to get back to working on this project. The section below this paragraph was something I was working on during May 2010. I will post it anyway with some updated commentary to reflect our current situation and what I have learned in the interim.
In my last post, I discussed the massive risk posed government debt. In this post, I will make some assumptions based on my personal outlook and will tailor my commentary based this overview. My assumptions, be they good or bad, are as follows: Austerity measures will be imposed in most of the [bankrupt] developed nations. [Update: The reduction in union negotiation rights and talk of entitlement reform in DC is just the beginning.] These efforts will lead to a period of deflation. This policy is destined to fail as prolonged deflation would destroy the too-big-to-fail banks in the US and Europe. When central banks see that deflation is accelerating, they will implement further quantitative easing. Translation: Inflate at any cost! Save the banks! Print money!!
Update: QE2 was conceived in August 2010, officially announced in November 2010, and is now operating through June 2011. Just another $600 billion printed out of thin air. Watch out for QE3 this fall.
As I alluded to in the previous post, the stocks of some companies will survive the crisis in paper assets, but those companies depending on government bailouts, government subsidies or the American consumer are likely falter in this environment. Let’s review the details.
The American Consumer
The American Economy is 70% consumer driven. Over the past 30 years, much of the increased consumption was driven by the ability of consumers to expand credit and get further into debt. The expansion of consumer credit has ended as Baby Boomers have exited their peak spending years. Without increased consumer spending, 70% of our economy will contract along with consumer credit [1], [2], [3], [4], [5], [6]. A secondary indicator is the fall in commercial loans [7] . Without loans, businesses large and small can’t expand and create jobs. Without a paycheck, the people cannot spend [8], and [9].
Despite these headwinds, recent reports have shown that retail sales may be up [10] . Hidden in this number is that some of the recovery in retail sales is due people going to mall rather than paying their mortgage [12], [13]. Obviously, this type of spending is not sustainable. Furthermore, government has stepped in with clunker programs to create a “recovery” in consumption. The new government debt required to fund this consumption is actually destroying the economy.
As I stated in the last post, taxes will be levied to pay for this spending, and they are likely to be levied on the folks creating the jobs [14]. This tax policy will lead to further destruction of our economy.
Pump and Dump
This stimulus driven “recovery” will not end well. There is evidence the government in coordination with the Federal Reserve has been pushing up the stock market. [15], [16] and [17]. The recent rally has led many to believe the market will only head straight up [18]. The last time stock markets sentiments were this high was in 1999 just before the tech bubble burst. For this reason, I believe much of the stock market is overvalued, and while you may discount my opinion, please do not discount that company insiders have been selling stock at an alarming rate since last fall [19], [20], [21], [22], [23]. [Update: Insider selling continued throughout the remainder of 2010 and into 2011.]
Update: The stock market rally started by QE1 ended around May 2010. The second rally started in the August 2010 with the anticipation of QE2. Newly printed money flowed into not only into stock but also commodities. It's driven up food and energy prices globally. These price increases have led to the situations involving food riots and revolutions in the Middle East and North Africa. If the money printing continues I expect food riots to start in the developed countries. In fact, it may already be in the cards.
The Second Wave Down…
In the next 6-12 months as home mortgage defaults [24] and commercial mortgage defaults increase [25], banks will enter a liquidity crisis as they did in September 2008. While this may be delayed until after the November elections, no amount of political maneuvering in DC will prevent a second crisis. The American have too much debt and too little work. House prices will continue to fall. The government continues accumulate debt and unfunded obligations [26] even under threat of higher interest rates [27]. Interest rates which in the long run will end up destroying the dollar [28]. I believe continued ownership of government debt, banking stocks, and consumer discretionary stocks are likely to end in heartbreak over the long run.
Update: My timing of the second crisis was clearly off. I didn't understand how to integrate into my thesis the reckless amount of money printing that will been undertaken to mask the problems. Rather than a bank liquidity crisis, I now believe we may have a sovereign debt crisis in the next couple of years. The solution remains the same...too much debt and too little money to pay it off.
Notice that not one executive has went to jail for the financial fraud that was committed during the housing bubble. Without the rule of law, there is no hope for the current system of government. It indicates that both political parties are bought and paid for by corporations and special interests. Thus, no real change can result from two-party dominated elections. So unless meaningful elections occur, the system is doomed.
For example, the new Congress squabbles about $60-100 billion in budget cuts when we should be talking about $1 trillion in cuts. We should also be looking for the roughly $4 trillion that was simply stolen from government coffers during the past decade or so. Neither issue is being seriously discussed.
I have included a couple additional reviews of this situation. Here [29] and here [30]. Please note there is some foul language in these posts.
In my last post, I discussed the massive risk posed government debt. In this post, I will make some assumptions based on my personal outlook and will tailor my commentary based this overview. My assumptions, be they good or bad, are as follows: Austerity measures will be imposed in most of the [bankrupt] developed nations. [Update: The reduction in union negotiation rights and talk of entitlement reform in DC is just the beginning.] These efforts will lead to a period of deflation. This policy is destined to fail as prolonged deflation would destroy the too-big-to-fail banks in the US and Europe. When central banks see that deflation is accelerating, they will implement further quantitative easing. Translation: Inflate at any cost! Save the banks! Print money!!
Update: QE2 was conceived in August 2010, officially announced in November 2010, and is now operating through June 2011. Just another $600 billion printed out of thin air. Watch out for QE3 this fall.
As I alluded to in the previous post, the stocks of some companies will survive the crisis in paper assets, but those companies depending on government bailouts, government subsidies or the American consumer are likely falter in this environment. Let’s review the details.
The American Consumer
The American Economy is 70% consumer driven. Over the past 30 years, much of the increased consumption was driven by the ability of consumers to expand credit and get further into debt. The expansion of consumer credit has ended as Baby Boomers have exited their peak spending years. Without increased consumer spending, 70% of our economy will contract along with consumer credit [1], [2], [3], [4], [5], [6]. A secondary indicator is the fall in commercial loans [7] . Without loans, businesses large and small can’t expand and create jobs. Without a paycheck, the people cannot spend [8], and [9].
![[4]](http://3.bp.blogspot.com/_lb18PLLUe2Q/S1DSYZ_D7sI/AAAAAAAAAG4/j0KVd30vKpc/s1600-h/Revolving+Consumer+Credit+1968+to+2009.bmp){kind=link}
Despite these headwinds, recent reports have shown that retail sales may be up [10] . Hidden in this number is that some of the recovery in retail sales is due people going to mall rather than paying their mortgage [12], [13]. Obviously, this type of spending is not sustainable. Furthermore, government has stepped in with clunker programs to create a “recovery” in consumption. The new government debt required to fund this consumption is actually destroying the economy.
As I stated in the last post, taxes will be levied to pay for this spending, and they are likely to be levied on the folks creating the jobs [14]. This tax policy will lead to further destruction of our economy.
Pump and Dump
This stimulus driven “recovery” will not end well. There is evidence the government in coordination with the Federal Reserve has been pushing up the stock market. [15], [16] and [17]. The recent rally has led many to believe the market will only head straight up [18]. The last time stock markets sentiments were this high was in 1999 just before the tech bubble burst. For this reason, I believe much of the stock market is overvalued, and while you may discount my opinion, please do not discount that company insiders have been selling stock at an alarming rate since last fall [19], [20], [21], [22], [23]. [Update: Insider selling continued throughout the remainder of 2010 and into 2011.]
Update: The stock market rally started by QE1 ended around May 2010. The second rally started in the August 2010 with the anticipation of QE2. Newly printed money flowed into not only into stock but also commodities. It's driven up food and energy prices globally. These price increases have led to the situations involving food riots and revolutions in the Middle East and North Africa. If the money printing continues I expect food riots to start in the developed countries. In fact, it may already be in the cards.
The Second Wave Down…
In the next 6-12 months as home mortgage defaults [24] and commercial mortgage defaults increase [25], banks will enter a liquidity crisis as they did in September 2008. While this may be delayed until after the November elections, no amount of political maneuvering in DC will prevent a second crisis. The American have too much debt and too little work. House prices will continue to fall. The government continues accumulate debt and unfunded obligations [26] even under threat of higher interest rates [27]. Interest rates which in the long run will end up destroying the dollar [28]. I believe continued ownership of government debt, banking stocks, and consumer discretionary stocks are likely to end in heartbreak over the long run.
Update: My timing of the second crisis was clearly off. I didn't understand how to integrate into my thesis the reckless amount of money printing that will been undertaken to mask the problems. Rather than a bank liquidity crisis, I now believe we may have a sovereign debt crisis in the next couple of years. The solution remains the same...too much debt and too little money to pay it off.
Notice that not one executive has went to jail for the financial fraud that was committed during the housing bubble. Without the rule of law, there is no hope for the current system of government. It indicates that both political parties are bought and paid for by corporations and special interests. Thus, no real change can result from two-party dominated elections. So unless meaningful elections occur, the system is doomed.
For example, the new Congress squabbles about $60-100 billion in budget cuts when we should be talking about $1 trillion in cuts. We should also be looking for the roughly $4 trillion that was simply stolen from government coffers during the past decade or so. Neither issue is being seriously discussed.
I have included a couple additional reviews of this situation. Here [29] and here [30]. Please note there is some foul language in these posts.
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