Tuesday, March 31, 2009
Saturday, March 28, 2009
By Alison Vekshin
March 4 (Bloomberg) -- Federal Deposit Insurance Corp. Chairman Sheila Bair said the fund it uses to protect customer deposits at U.S. banks could dry up amid a surge in bank failures, as she responded to an industry outcry against new fees approved by the agency. “Without these assessments, the deposit insurance fund could become insolvent this year,” Bair wrote in a March 2 letter to the industry. U.S. community banks plan to flood the FDIC with about 5,000 letters in protest of the fees, according to a trade group. “A large number” of bank failures may occur through 2010 because of “rapidly deteriorating economic conditions,” Bair said in the letter. “Without substantial amounts of additional assessment revenue in the near future, current projections indicate that the fund balance will approach zero or even become negative.”
Smaller banks are outraged over the one-time fee, which could wipe out 50 percent to 100 percent of a bank’s 2009 earnings, Camden Fine, president of the Independent Community Bankers of America, said yesterday in a telephone interview. “I’ve never seen emotions like this,” said Fine, adding that he’s received more than 1,000 e-mails and telephone messages from angry bankers. “The FDIC realizes that these assessments are a significant expense, particularly during a financial crisis and recession when bank earnings are under pressure,” Bair wrote. “We did not want to impose large assessments when the industry and economy are struggling. We searched for alternatives but found none better.”
The agency, which has released the change for 30 days of public comment, could modify the assessment to shift the burden to the large banks “that caused this train wreck,” Fine said. “Community bankers are feeling like they are paying for the incompetence and greed of Wall Street,” he said.
Bair dismissed that suggestion. “For risk-based assessments, our statute restricts us from discriminating against an institution because of size,” Bair wrote. The deposit insurance fund won’t dry up because the government can get funds from the industry and congressional appropriations, and borrow from the Treasury, Chip MacDonald, a partner specializing in financial services at law firm Jones Day, said today in a telephone interview. “As a depositor, I am not worried in the least,” MacDonald said. “No one is going to let the FDIC go without any money.”
Consumers should watch this issue closely, said Edmund Mierzwinski, consumer program director at U.S. PIRG, a Boston- based consumer-watchdog group. “I wouldn’t take their money out of the bank yet,” Mierzwinski said. “If the FDIC is saying that there is this serious problem, then we should all be concerned. I think there is a chance the FDIC is going to have to ask taxpayers for money in the future.”
No Taxpayer Funds
Bair rejected arguments that the agency should use government aid to rebuild the fund. The FDIC has authority to tap a $30 billion line of credit at the Treasury Department and legislation pending in Congress would boost the amount to $100 billion. “Banks, not taxpayers, are expected to fund the system,” Bair said. Asking for taxpayer support “could paint all banks with the ‘bailout’ brush.” The FDIC “will revise the interim rule, if appropriate, in light of the comments received,” the agency said in a Federal Register notice.
Friday, March 27, 2009
The top chart below of the DJIA/Gold Ratio defines very clearly the most recent cycle that commenced in 1982. The expansion phase came to an abrupt ending, as it always does, in mid-1999 (while we were all jacked up on dotcom stocks!). The bottom chart, the Dow Jones Industrial Average (DJIA), presents a very interesting contrast. For several years while the ratio begins to collapse, the DJIA recovers from the Dotcom crash and regains it's upward trend. This, my friends, illustrates the power of the Federal Reserve and aggressive "money printing". The patient is dying on the table, and doctors Greenspan and Bernanke keep it alive for a little bit longer. How long do we really want the patient on life support? If death is inevitable, lets make peace with the patient and let nature takes its course.
As we all know, the patient begin to have convulsions and seizures in late 2007, a major heart attack in 2008, and here we are in early 2009 with the doctors attempting a heart transplant. The medical team has been expanded with the addition of Paulson, Bush, Obama, Dodd, Pelosi, Frank, and Geither.
The chart below presents a short term detailed representation of the ratio over the past three years. Capitulation is in full force.
The most significant aspect of this attempt of financial manipulation is that the U.S. dollar is being destroyed. The chart below illustrates the divergence in the advancement of the DJIA in comparison to the destruction of the dollar. The Fed is attempting to create some short term gain by artificially stimulating the DJIA, but the damage will be the long term destruction of our currency. This will lead to massive hyperinflation which will last for a long time.
In summary, the DJIA/Gold Ratio presents an excellent short and long term tool for modelling the asset classes in one's portfolio. The ratio presented a signficant inflection point in mid-1999, and the contraction phase is playing out. Most importantly, it is NOT TOO LATE to re-model your portfolio. Remember, some jumped in lifeboats off of the Titantic. Some boarded early and some late, but those that did, saved their lives.
Thursday, March 26, 2009
In my October 2008 post, Four Potential Outcomes, I presented what I believed to be the four potential outcomes in the near future. Outcome #1, deflation, appears to have already swiftly occurred devasting asset prices in all sectors including commodities. The "missing piece" is that from an Austrian economics perspective, credit and money expansion need to deflate also. As we know, the opposite is occurring on a staggering level.
Option #2, inflation, appears to me to be the "next wave". The Fed and the Obama administration are continuing the "money printing" that Reagan, Bush Sr., Clinton, and Dubya participated in. The difference is that it's being done at unprecedented levels. The "slope" of the M3 curve makes Clinton's "printing" look trivial. The most likely result will be massive hyperinflation. This will drive prices of everything through the roof. As stated in the Oct-2008 post, buy some commodities. Gold is already back near its pre-crash price.
Option #3, the "zig zag", is the sideways movement similiar to Japan from 1990 to present. This involves minor "ups and downs" with no significant growth or contraction. Based on the past six month decline in prices, I would say that this option is already ruled out. The significant drop in prices already in place is more than what I would describe as a "zig zag".
Option #4, "the party continues", is the most fascinating to me because my unofficial survey says that everyone is still "all in" with stocks. The "40-50 something" generation only knows stocks and 401k's. The concept of buying gold coins is so foreign to most and I admit that it was initially to me (just had some more shiny ones arrive yesterday....beautiful!). I believe that the American public hopes for a continuation of the Supersize Me Era. We really enjoyed it and we hope that somehow Obama can keep the party going. Unfortunately, I believe that the kegs have run dry and we'll be forced to shift our mentality to a place it hasn't been in our lifetime. It's best to be proactive than reactive. Reactive can be very painful. Hopefully you have a nice photo album of the era. It will be one to remember.
As stated earlier, Peyton Manning, comes to the line with 2-4 plays. I believe that the American public only has one play. Design your plan with multiple plays and risk weight their probability of occurence. Also, assess your advisor. Tom Moore, Manning's offensive coordinator, has a great track record of success which eliminates Peyton's need to question the play calling. Who is your play caller? Has he/she only presented one play?
Here's my assessment of the probability of occurence:
-Option #1: Deflation (35%)
-Option #2: Inflation (55%)
-Option #3: Zig-Zag (0%)
-Option #4: Continued Bubble Expansion (10%)
The heavier weighting of the inflation outcome has driven me to shift my portfolio strongly towards commodities (oil, natural gas, food, gold, and silver).
Tuesday, March 24, 2009
I’m continually dumbfounded by the fact that most people believe that the economy is controlled by the president and their administration. I first ask: “wouldn’t all presidents want a good economy? If so, why don’t they create it?”. I’m a big believer in Adam Smith’s “invisible hand” http://en.wikipedia.org/wiki/Invisible_hand.
Monday, March 23, 2009
"Russian President Dmitri Medvedev this week announced a large-scale military rearmament program, which he says will require considerable resources despite difficulties associated with the current global economic crisis. There are political and economic realities that could be driving as well as hindering Mr. Medvedev's proposal.
Tanks and missiles paraded across Red Square last May for the first time since the Soviet collapse in 1991. But Russian Defense Minister Anatoly Serdyukov recently said 90 percent of Russia's military technology is outdated. This includes most of the hardware on parade."
On March 17, President Dmitri Medvedev unveiled an ambitious rearmament plan to modernize Russia's military. Mr. Medvedev says Russia's primary task is the enhancement of troop combat readiness; not the usual enhancement, but rather qualitative enhancement - above all through the strategic nuclear forces.
The Kremlin leader says Russian security is threatened by NATO expansion, local crises, and international terrorism. He adds the conflict against Georgia last August revealed flaws in Russia's conventional forces as well. Independent Russian military analyst Viktor Litovkin says Russia lacks combat support systems rather than firing units, and notes that such systems consist of drones, precision weapons, reconnaissance, navigation, communication, and guidance systems, etc. He adds that Russia in this field is far behind what he calls the modern civilized world.
President Medvedev says Russia will devote considerable resources to develop and purchase new weapons, despite a tight national budget affected by the declining price of Russian oil exports.
The entire article:
Sunday, March 22, 2009
"It is my firm belief that over the years ahead, the US and all other debt-laden nations in the West will engage in massive money-creation in order to debase their currencies and dilute the purchasing power of paper money. Remember, monetary inflation is a debtor’s best friend as it makes the debt easier to service and repay. On the other hand, monetary inflation goes against the interests of savers and creditors. Given the fact that most of the ‘developed’ nations are up to their eyeballs in debt, you don’t have to be a genius to figure out that monetary inflation is our future. At present, the global economy is dealing with deflationary forces due to credit contraction in the private-sector. However, even now, total credit in the US is expanding due to rampant borrowing by the US government. So, I don’t expect deflation to take hold; rather, I anticipate accelerating inflation which has always led to rising asset and consumer prices."
"Now that we have established that monetary inflation is our future, let us examine which currencies and assets will maintain their purchasing power. If history is any guide, nations which engage in monetary inflation always diminish the purchasing power of their currency. So, in the years ahead, we can expect currencies in the West to depreciate in terms of purchasing power but the trouble is that none of the fundamentally sound nations want a strong currency either! As the world engages in competitive currency devaluations, I expect all the currencies in the world to lose significant purchasing power against hard assets. Therefore, in the years ahead, precious metals and other commodities with intrinsic value should appreciate considerably. Even the values of fundamentally sound businesses with clean balance-sheets should sky-rocket as a result of inflation."
The entire article:
Saturday, March 21, 2009
Guinea-Bissau collapse deepens after leader killed
By TODD PITMAN – 15 hours ago
BISSAU, Guinea-Bissau (AP) — The blood-soaked dining room where Guinea-Bissau's president was brutally murdered is littered with broken glass, bullet casings and a rusted machete. No crime scene tape cordons off the area, no police stand guard outside. No one has been arrested, and hardly anyone in this sleepy tropical capital seems to care.
The apathy surrounding the slaying of President Joao Bernardo "Nino" Vieira in his own home — as well as the bombing attack that killed his main rival hours earlier — symbolizes just how far this drug-wracked state has fallen. "What are we supposed to do, cry? Demand justice?" asked journalist Zique Choaib, 41. "The powerful people at the top have been fighting each other for decades. They'll keep fighting. It's really nothing new."
Less than 24 hours after the brutal slayings Monday, market stalls were open, people were back in the streets and the city's dilapidated fleet of blue-and-white Mercedes taxis was again cruising the potholed roads, Caribbean rhythms pulsing from their radios. The reaction was nearly identical after the last military coup in 2003: no surprise, mild speculation, then within a day, a return to normalcy so complete it seemed as if nothing had happened.
Since winning a violent struggle for independence from Portugal in 1974, this nation of 1.5 million has been on a losing streak — cursed by coups, coup attempts and war. Today it is ranked third-worst of 177 nations on the U.N. Human Development Index, which measures general well-being. One of the world's poorest countries, life expectancy is a mere 45.
Vieira is blamed for much of the slide. He seized power in 1980 and ruled for 19 years until being ousted at the end of the country's civil war. He returned from exile to win 2005 elections that observers deemed free and fair.
But life only seemed to get worse. Then, multistory villas began springing up on the edge of town, signaling the arrival of suspected Latin American drug traffickers who moved in to take advantage of the country's weak government, corrupt security forces and strategic position south of European drug markets.
U.N. officials now say Guinea-Bissau has become a leading transit point for Europe-bound cocaine. Last month, the State Department warned that the "degeneration of Guinea-Bissau into a narco-state is a real possibility." The nation's economy is minuscule, driven largely by cashew, fish and peanut exports, so even a small influx of drug money can have a major impact.
The U.N. estimates the cocaine transiting through Guinea-Bissau is worth more than a billion dollars a year, dwarfing the meager national budget. Top military officials have been accused of taking a cut to allow drug planes to land and to turn a blind eye to drug activity. The Judicial Police responsible for investigating the narcotics trade are unarmed, equipped with typewriters and the targets of anonymous death threats.
The International Crisis Group summed up the dire state of affairs in its latest report, titled "Guinea-Bissau: In Need of a State." Vieira governed from his own modest home — a four-bedroom, single-story bungalow on a crumbling downtown street frequented by mud-covered pigs. The rocket-blasted presidential palace has been uninhabitable since its roof was blown apart in fighting a decade ago. Today, it lies neglected — much like this extraordinarily undeveloped nation.
Asked about Vieira's fate, student Abenaque Camara asked: "Why should we care?"
"We're more concerned with finding something to eat," said the 20-year-old, who still hasn't finished high school because of repeated teacher strikes. "Look at us: No jobs, no food, no electricity. There's only darkness."
Remember the Onion.
Friday, March 20, 2009
Will people become more focused on themselves as this contraction evolves? The chart below reveals that "fear" is on the rise.
Another hypothesis was related to the Mexican border. A few years ago, this was such a hot topic. Lou Dobbs still can't seem to let go of it. My hypothesis was that when our personal issues become troubling, we'll stop focusing on other topics that we can't control. The chart below reveals that our interest in the Mexican border peaked in 2006. With recent events along the border relating to the drug war, it's very interesting that our radar hasn't even identified the issue. The good news is that we are much more "happy" than "sad". And, not surprisingly, we have "happy peaks" during the Christmas holidays. Maybe we should celebrate Christ's birthday more than once per year!
Thursday, March 19, 2009
"We are now at an historic inflection point in history—with no turning back the clocks. Had our political leaders from Reagan and Clinton to Bush I and II been more fiscally responsible, we wouldn’t be facing the largest monetary storm in history. That monetary storm lies directly in front of us. Bernanke and Greenspan may summarily dismiss high oil prices, but for most of us who live in the real world, higher energy costs are going to be inflationary. Investors need to start preparing for $100 oil. Higher oil prices will eventually permeate all aspects of economic life, driving the costs of basic necessities higher. In the future you may be able to buy a flat screen TV, DVD player or personal computer at a cheaper price, but the cost of everything else will be rising. The things that you need in everyday life will all be going up: your grocery bill, your utilities, the gasoline that powers your car, visits to your doctor or dentists, tuition, and lastly, taxes."
"The economy will vacillate between periods of deflation and inflation, with each recession bringing forth a temporary reprieve from what will be an inexorable rise in the general rate of inflation. Eventually wars, deficit spending, a rising mountain of debt, and peak oil will lead towards hyperinflation in the United States. Already, the U.S. is exhibiting many of the pre-hyperinflationary conditions that are so prevalent in many South American and Eurasian economies."
Evidence points to several factors that will lead us there:
-Large budget deficits
-Deteriorating international trade balances
-An eroding international currency
-Eroding financial confidence
-An expanding war on terrorism and the need for security
"Whether the U.S. experiences hyperinflation or simply higher inflation rates will be dependent on the political will of its leaders to rein in spending and bring its fiscal imbalances into order. At this point, it appears hopeless with over $51 trillion in unfunded Social Security, Medicare, and pension liabilities now growing at over $2 trillion a year. History teaches us that debt imbalances of this magnitude are always inflated away."
"An expanding money supply, abundant credit, and negative interest rates are inherently inflationary. When investors realize that they can borrow money at next to nothing rates and invest that money in hard assets and get an immediate return, the demand for such assets rises. This leads to higher prices, asset bubbles or inflation. This is what is going on now in the financial markets, the real estate market, and in the commodity markets. A flood of money and credit throughout the world is driving asset bubbles and inflation. Central banks can create money and credit, but they are unable to direct where that money flows. One of the chief characteristics of inflationary cycles is asset bubbles. First, it was stocks in the 1990s. Then, it was real estate and mortgages in this new century. It is now working its way through to the commodity markets. The new bull market in commodities will dominate the financial markets the balance of this decade and the next."
"As debt levels rise in the U.S. at unprecedented levels, the Fed will increasingly become impotent. Unlike Volcker in 1979, today’s U.S. economy is far more debt laden. Because of this huge debt overhang and the huge asset bubbles that support it, the Fed’s options are limited. The Fed simply can’t afford to raise rates in the same decisive and single-minded way that Volcker did during 1979-1982. The Fed’s new mantra is "measured." This means that real interest rates will remain negative for a long period of time."
"No matter how high inflation finally gets, it is abundantly clear that the financial markets are undergoing a paradigm shift from a bull market in paper to a bull market in commodities or "things" as I like to call them."
"Investors will need to focus on a different class of assets. Real assets are going to be the big winners in this new emerging bull market. Commodities are becoming "The Next Big Thing." Precious metals, base metals, energy, water, and food are where the next fortunes are going to be made. Precious metals have, will, and are going to lead this new bull market. It is in regard to precious metals that I devote the remainder of this essay."
Wednesday, March 18, 2009
Source: Houston Chronicle
States look to booze for shots to economy
By BROCK VERGAKIS Associated Press Feb. 15, 2009, 2:27PM
SALT LAKE CITY — Utah is the only state that requires people to fill out an application and pay a fee before entering a bar. But the shelf life of this law — enacted 40 years ago in a state where nearly two out of three residents are members of a religion that shuns drinking — appears to be dwindling. In Utah, and across the country, governors and lawmakers faced with budget deficits are advocating loosening laws that restrict alcohol consumption in the hopes of boosting tax revenues.
In Georgia, Connecticut, Indiana, Texas, Alabama and Minnesota, lawmakers are considering legislation this year that would end the ban on Sunday liquor sales. All but 15 states sell booze on Sundays. In Nebraska, a state lawmaker has proposed allowing beer to be consumed in state parks as a way to boost tourism. Other states, including Utah, are considering allowing the sale of liquor on Election Day.
Drinkers shouldn’t break out the bubbly just yet: Two dozen states, including California, Massachusetts, Oklahoma and Virginia, are looking to help their budgets by raising alcohol taxes. Alcohol taxes are a popular budgetary crutch for lawmakers because liquor sales tend to hold up relatively well, compared with other revenue streams, during hard times, said Steve Schmidt, vice president of the Alexandria, Va. based National Alcohol Beverage Control Association.
In 2008, revenue reported by liquor suppliers rose 2.8 percent from the previous year to $18.7 billion, according to the Distilled Spirits Council of the United States. That’s slower than the 6 percent average annual growth rate since 2000.
The council’s president, Peter Cressy, calls liquor “recession resilient” not recession proof — a point that industry officials make when cautioning lawmakers about raising taxes.
Earlier this month, distillers in Kentucky poured bottles of bourbon on the statehouse steps there to protest a proposed tax increase.
In Pittsburgh, a 10 percent tax placed on alcohol last year inspired an animated satire, resulted in some bars printing signs saying the tax’s architect was not welcome and one restaurateur challenging Allegheny County Executive Dan Onorato to a charity boxing match.
Ben Jenkins, a spokesman for the Distilled Spirits Council, said states would be better off if they simply made alcohol more accessible to meet consumer demand. States that lift the ban on Sunday sales see a 5 percent to 8 percent annual sales increase, he said.
“Dozens of states consider alcohol taxes and every year most of them fail because the legislators become educated as to the effects a tax increase on alcohol would have on the hospitality industry,” he said. “Since 2001, we’ve seen 245 major tax proposals and 227 of them have failed.”
Those opposed to reforming Utah’s liquor laws cite concerns about overconsumption and drunk driving. But religion also plays a key role. About 60 percent of the state’s residents are members of The Church of Jesus Christ of Latter-day Saints, which tells its members not to drink alcohol. An even greater percentage of lawmakers — 80 percent to 90 percent — are Mormon, though some of them are open to changing the law for the sake of the state’s economy.
The state’s private club system as it’s currently known, was created in 1969 after voters — encouraged by the church — killed a proposal to allow the sale of liquor by the drink in restaurants.
But for Utah’s $6 billion-a-year tourism industry, liquor laws are a major issue, too. They say it hurts their efforts to compete with neighboring states like Colorado for the lucrative convention and ski market. If there was ever a question if Utah has an image problem because of its quirky liquor laws, business travelers like Marty Cano can answer it.
“Originally, I thought alcohol was illegal here,” the Austin, Texas IT consultant said one recent night after downing a few pints of beer at the Poplar Street Pub, a few blocks away from the downtown Mormon temple. Utah’s bar industry has come up with a compromise to the hassle of making patrons fill out forms. Its leaders have proposed scanning driver’s licenses before customers enter a club to verify nobody under 21 enters. Some lawmakers would like information about who goes into a bar stored on the scanners so police could use it.
There are other ways in which Utah’s liquor laws are getting stronger. Last year, it became the only state to ban the sale of flavored malt beverages from grocery and convenience stores.
Other states, meanwhile, are trying to eliminate much less onerous hassles associated with buying alcohol.
In Colorado and Kansas, grocery stores are fighting for the right to sell full-strength beer. Most of the opposition in those states isn’t coming from morality groups, but instead from liquor stores who like having a corner on the market. A similar effort is occurring in Tennessee, where lawmakers are considering allowing the sale of wine in supermarkets.
In Alabama, a proposal to raise the amount of alcohol allowed in beer from 6 percent alcohol by volume to 13.9 percent is being considered, although some church groups fear it would result in people getting drunker quicker.
Dave Morris, owner of Salt Lake City’s Piper Down, an Irish-themed pub, said keeping a database of who enters a bar would be “a public relations nightmare” but he says he’s willing to accept scanning IDs if it helps tourism officials lure more visitors to the state, and put more money into the pockets of his customers. “If they have more money, they can come out more often,” he said. “It will all trickle down.”
On a similar note regarding religion, this individual prioritized his economic needs first:
South Carolina church deacon allegedly turns bank robber; snapped after filing for bankruptcy
BY Tracy Connor DAILY NEWS STAFF WRITER
Saturday, February 28th 2009, 10:12 AM
With News Wire Services
"South Carolina businessman Bruce Windsor is a church deacon, soccer coach and father of four - but money problems drove him to take on a new role: bank robber. The 43-year-old real estate developer is being held on $1.5 million bail after he allegedly took hostages at gunpoint during a bank holdup. "This doesn't even register," Windsor said during an arraignment on robbery, kidnapping and weapons charges on Friday.
"I'm just ill. I've never stolen anything in my life." Relatives said Windsor - who recently filed for bankruptcy - simply "snapped" from the financial pressure. Cops say he barged into the Greenville First Bank on Thursday afternoon wearing a mask and holding a gun, ordered two female employees into an office and demanded money.
There was a 90-minute standoff with a SWAT team before Windsor peacefully surrendered. No one was hurt.Everyone who knows Windsor was stunned to find out he was the suspect.
"He loves his kids and adores his kids," his sister said in court. "The only thing I can think of is he must've just snapped under the pressure. I mean, Bruce doesn't even say cuss words."
One must keep their perspective through these challenging times. The evolution away from materialism is a slow and painful process.
Tuesday, March 17, 2009
From the BBC:
French Sony boss freed by staff
The head of Sony France and his human resources manager have been freed after being held captive overnight by staff angry at their severance package. Serge Foucher and Roland Bentz were released from the factory in south-west France after agreeing to restart talks on the terms of the redundancy. The plant at Pontonx-sur-l'Adour is due to shut on 17 April.
Representatives of the 311 workers said their action was the only way to make management listen to their concerns. Talks were said to be under way on Friday afternoon. "We hope that this time our voices will be heard," unionist Patrick Achaguer told Reuters news agency. Mr Foucher's visit to the plant on Thursday was to be his last before its closure, the AFP news agency reports.
Workers, unhappy that their pay-off is less generous than for staff at other closed French Sony plants, decided to strike and barricaded the site to stop the company executives from leaving. Police were outside the site but did not intervene. There have been several incidents in the past of disgruntled French workers holding their bosses hostage, the French news agency reports.
My family experienced some "social chaos" this week. I've stated several times that we all need to protect our family, but random chaos is a hard thing to predict. My wife, a corporate trainer, was at her client's office earlier this week delivering a training class. The corporate security walked in and announced that the building had to be evacuated immediately. An eighteen year female employee was terminated the week prior. It appears that the combination of a crumbling marriage and the job loss drove her to take her life over the weekend....despite having two children. The husband, also an employee of the company, called the company and stated that he was coming to the office to shoot the managers. Wow! Too close for our comfort. I once again state, where is the perspective on life?
Monday, March 16, 2009
‘Obama Bear Market’ Punishes
By Eric Martin
March 6 (Bloomberg) -- President Barack Obama now has the distinction of presiding over his own bear market. The Dow Jones Industrial Average fell 20 percent since Inauguration Day, the fastest drop under a newly elected president in at least 90 years, according to data compiled by Bloomberg. The gauge has lost 53 percent from its October 2007 record of 14,164.53, slipping 4.1 percent to 6,594.44 yesterday.
More than $1.6 trillion has been erased from U.S. equities since Jan. 20 as mounting bank losses and rising unemployment convinced investors the recession is getting worse. The president is in danger of breaking a pattern in which the Dow rallied 9.8 percent on average in the 12 months after a Democrat captured the White House, according to data compiled by Bloomberg.
“People thought there would be a brief Obama rally, and that hasn’t happened,” said Uri Landesman, who oversees about $2.5 billion at ING Groep NV’s asset management unit in New York. “It speaks to the carnage that’s in the economy and the lack of confidence in the measures that have been announced.”
A bear market is defined as a decline of 20 percent or more. Buying shares “is a potentially good deal” for long-term investors, Obama said March 3. He compared daily fluctuations to a tracking poll in politics and said he wouldn’t adjust his policies just to meet market expectations.
Congress last month enacted Obama’s $787 billion package of tax cuts and spending on roads, bridges and public buildings. His 2010 budget indicated the government’s financial rescue may need another $750 billion after an initial $700 billion.
The backlash has just begun and will escalate to levels not seen since the 60's. The "teaparties" being held around the nation are the lighter version of what is to come. Police, assemble your riot gear.
Sunday, March 15, 2009
The 11 Laws of Bear Market Success
By Martin Weiss, Claus Vogt, and Mike Larson
1. Protect capital; keep ready store of cash; get rid of losers
2. Use common sense
3. Don’t count on the government to boost your investments. Use government-inspired rallies as opportunities to sell.
4. Invest exclusively in liquid, easy-to-sell investments.
5. Stay flexible: expand your horizons beyond traditional investment strategies.
6. Use investments that move independently of stocks and bonds (currencies, gold).
7. Find special situations that go up despite a bear market (Ex. Companies that are virtually depression-proof)
8. Use investments that go up because of a bear market (Ex. Inverse ETF’s).
9. Balance your portfolio: even in a bear market, don’t bet exclusively on the downside.
10. Don’t fall in love with your investments: Take profits along the way and roll them into new opportunities.
11. Be a contrarian! Buck the crowd!
To watch the video:
Saturday, March 14, 2009
Friday, March 13, 2009
"It has been my contention since last fall that due to the level of money creation inflation is inevitable. I further speculated that the precious metals sector would take the lead in signaling the loss of purchasing power of currencies, followed by the agriculture sector, and then the oil sector. So far this course is playing out accordingly. It is important to understand that prior to a Tsunami the water recedes only to comeback with full force. My observations lead me to believe that the early tides of this massive inflationary Tsunami are coming in. The next period will be the last chance to inflation-proof your portfolio. If you do not yet believe in the inflation thesis raise cash during the next market bounce, otherwise reposition yourself to benefit from this paradigmatic transfer of wealth. My main investment thesis, inflation hedging, has not changed and I continue to recommend that clients have greater long term consideration in precious metals, agriculture, and energy. I would be very happy to discuss my conclusions and their implications for your net worth, please feel free to contact me."
The full article:
Thursday, March 12, 2009
Today Google announced a new service called Google Voice that offers a single phone number to ring all of your phones, voicemail, call screening, voicemail transcripts, conference calling, and archived searchable SMS text messages.
Wednesday, March 11, 2009
It looks like that credit card might have run dry.
Source: The Wall Street Journal
DUBAI -- "This city-state said the federal government of the United Arab Emirates would provide $10 billion in funding, allowing Dubai to service its heavy debt load as it copes with a tanking real-estate market and tepid appetite among international lenders to extend further credit. The effective bailout will be structured as a long-term bond, the governments of Dubai and the UAE said in separate statements late Sunday. Dubai is one of seven, semi-autonomous emirates that make up the UAE. Unlike its neighbor and UAE capital Abu Dhabi, Dubai doesn't have much oil. It financed much of its recent, explosive growth with international borrowing. State owned and controlled companies tapped local and overseas markets to help finance some of the emirate's most ambitious property, tourism and infrastructure projects.
In less than a decade, Dubai transformed itself from a sleepy backwater to a booming regional business, tourism and transportation hub. As it blossomed, civic leaders grew more ambitious. In 2001, a government-owned developer launched a palm-tree-shaped island development of luxury villas and hotels. Two years later, another government-controlled developer started selling floor space in the then-unbuilt Burj Dubai tower. Both projects are now mostly finished, and the Burj Dubai stands as the world's tallest skyscraper. But as the U.S. housing market soured and the first hints of the extent of today's global financial crisis started to emerge in late 2007, analysts and investors began raising concerns about the lack of transparency surrounding all the borrowing.
Dubai officials said at the time they would seek a sovereign debt rating, like next-door neighbor Abu Dhabi. But they never appeared to be actively pursuing one. Still, credit agencies tended to give near-top-notch ratings to corporations owned or controlled by either the Dubai government or Dubai's charismatic ruler, Sheikh Mohammed bin Rashid al Maktoum. If Sheikh Mohammed overextended, many analysts assumed, oil-rich Abu Dhabi would offer a lifeline. This year turned out to be crunch time. Regional bank EFG-Hermes estimated that Dubai's principal and interest payments due in 2009 would equal some $14 billion. Late last year, the city's once red-hot property market soured. After soaring for years since Dubai opened the market to foreigners in 2002, prices have now fallen back down to earth more recently."
The country holds the following records:
-world's tallest building
-world's largest gold ring (135 lbs)
-world's tallest hotel
-world's largest mall
-world's largest indoor ski resort
-world's largest man-made marina
-world's largest man-made island
-world's first underwater hotel
-world's largest amusement park
-world's largest passenger and cargo hub
-world's first rotating skyscraper
-world's longest and tallest arch bridge
-world's longest fully automated rail system
-world's largest horse racing purse
It sounds like they've been dining on a few Plastic Eggrolls!
This will be one to watch. Lets consider Dubai to be the world's leader in credit spending!
Tuesday, March 10, 2009
Gunmen kill a police officer in Northern Ireland
By John F. Burns and Alan Cowell Herald Tribune
Published: March 10, 2009
Two days after two British soldiers were shot and killed in Northern Ireland, gunmen opened fire and killed a police officer late Monday, news reports said, reinforcing a challenge to the authorities to maintain a mood of reconciliation underpinning a still-uncertain peace.
The killing came as the British prime minister, Gordon Brown, visited Northern Ireland to insist that the protracted peace effort beginning with the Good Friday agreement in 1998 could not be reversed, despite the death of two soldiers outside a British Army base in Antrim on Saturday. The soldiers were shot hours before they were set to depart for Afghanistan.
The Northern Ireland conflict provides an interesting opportunity to align it with the frame of reference of the economic cycle that I have presented in the past (DJIA/Gold Ratio). The theory is that during the expansion phase of the economic cycle we predominantly have peace. Most economies are growing, people are prospering, and happiness is the dominant mood. In contrast, during the contraction phase, the masses quickly and collectively become fearful and angry. This "shift in mood" leads to conflict. One the the commencement points is usually a "rekindled old fire". Northern Ireland fits the description very well. The chart below presents the model with the DJIA/Gold Ratio serving as the metric.
Now lets take some key events from Northern Ireland over the past 28 years and see how they align with the ratio through time. During the 80's and 90's many attempts were made for peace in Northern Ireland. This culminated in the signing of the Belfast or Good Friday Agreement that officially called a ceasefire in 1998. It's important to note that this agreement is reached practically at the peak of the DJIA/Gold Ratio. Unfortunately, it didn't take long for more terrorist events to occur. In August, 1998 An explosion in Omagh kills twenty-eight. The Real IRA, an anti-Agreement splinter group of the Provisional IRA, claims responsibility. Since the Belfast Agreement, a general decline in peace has occurred. The events of the past week indicate that more trouble could lie ahead. If one believes that mass social mood aligns with the economic cycle, than the chart and the forecasted trend might indicate more significant conflict lies ahead.
Monday, March 9, 2009
The Houston Chronicle reported this story today:
The rich flee Mexico drug violence
Fearing for their lives, affluent seek asylum in Houston, other Texas cities
By JAMES PINKERTONCopyright 2009 Houston Chronicle
March 8, 2009, 11:23PM
Mexican businessman Jorge Hernandez abruptly relocated his family to Houston last year, terrified that family members would be abducted by kidnappers. He had ample reason to be afraid. He left in August, days after a father was kidnapped for ransom as he dropped his child off at the same school Hernandez’s children attended in a north Mexico city. “One night, I told my wife ‘Pack the bags — we’re leaving,’" Hernandez said. “The fear we felt caused us to get in the car and drive for 12 hours to get to Houston.”
The 43-year-old businessman joined a growing number of affluent and middle-class Mexicans fleeing comfortable lives in Mexico for the comparative safety of Houston and other major Texas cities. They are desperate to escape an unprecedented wave of lawlessness in their home country where warring drug cartels — whose fighting claimed more than 6,000 victims last year — have also taken up kidnapping as a lucrative business.
Monterrey, the nation’s third-largest city and Mexico’s industrial powerhouse, had two kidnappings a day last year, according to the El Manana newspaper. Businessmen like Hernandez have been joined by hundreds or perhaps thousands of middle-class Mexicans seeking asylum at U.S. ports of entry across from Mexican border towns where violent gunbattles have raged. Last year, 2,231 Mexican citizens sought asylum in the U.S., a significant increase from 1,366 in 2006. “It seems to me there are more people coming now than there have been in the last couple of years, and the flow is increasing,” said John W. Meyer, a Houston immigration lawyer hired by Hernandez to process his visa.
Most of these Mexican expatriates are business owners who can afford to commute to Mexico several days a week and can enroll their children in private schools and buy homes in Houston. Many Mexicans who qualify for work or investor visas have settled in neighborhoods near the Galleria and The Woodlands, officials said. “We’ve seen some of that increase over the last couple of years,” said Nick Wolda, president of the visitor’s bureau in The Woodlands. “For the Mexican audience, The Woodlands is a desirable location: the schools, the parks, the pathways. What we’re finding is people coming here are investing in businesses, or being transferred from companies.”
Meanwhile, many Mexicans in border towns wracked by violence are crossing international bridges and requesting asylum. “We have seen an increase in the number of asylum claims at our ports of entry, and this is one factor among a number that we are seeing as part of the situation along the border,” said Mike Friel, spokesman for U.S. Customs and Border Protection. In El Paso, asylum claims by Mexican citizens have increased from 12 in fiscal year 2005 to 80 last year, according to CBP records. “We’re seeing complete families fleeing from our sister city Juarez. They are middle-class business people. ... Their loved ones are being kidnapped, and they are asking extremely high amounts of money,” said Elvia Garcia, outreach coordinator for the Paso Del Norte Civil Rights Project in El Paso. Garcia said other nonprofit legal agencies in El Paso have been inundated with calls from hundreds of Juarez residents who have crossed the border on tourist visas and now want to seek asylum.‘
Ricardo Ainslie, a professor at the University of Texas at Austin, has produced a documentary on Mexico’s kidnapping industry. He said the kidnappings have motivated many of the nation’s leading professionals to leave. “In Mexico, there is a real anxiety about it because it’s a huge brain drain. The money and talent is leaving Mexico in huge numbers to San Diego, San Antonio and Austin,” Ainslie said. Hernandez said he had to leave Mexico when he saw the drug gang battles in the streets and the police and military presence. But while the family was drawn to Houston because of the culture and educational opportunities for his wife and three children, it has been hard to transition. “Your family suffers,” Hernandez said. “But when you turn on the TV and listen to the news from Mexico, that’s when you say to yourself you made the right decision to leave.”
The USA Today recently reported about Mexican drug cartels in Atlanta:
In a city where Coca Cola, United Parcel Service and Home Depot are the titans of industry, there are new powerful forces on the block: Mexican drug cartels. Their presence and ruthless tactics are largely unknown to most here. Yet, of the 195 U.S. cities where Mexican drug-trafficking organizations are operating, federal law enforcement officials say Atlanta has emerged as the new gateway to the troubled Southwest border.
Rival drug cartels, the same violent groups warring in Mexico for control of routes to lucrative U.S. markets, have established Atlanta as the principal distribution center for the entire eastern U.S., according to the Justice Department's National Drug Intelligence Center.
Don't you know
Theyre talkin bout a revolution
It sounds like a whisper
Dont you know
Theyre talkin about a revolution
It sounds like a whisper
While theyre standing in the welfare lines
Crying at the doorsteps of those armies of salvation
Wasting time in the unemployment lines
Sitting around waiting for a promotion
Poor people gonna rise up
And get their share
Poor people gonna rise up
And take whats theirs
Dont you know
You better run, run, run...
Oh I said you better
Run, run, run...
Finally the tables are starting to turn
Talkin bout a revolution
Tracy might have been a visionary.
A serious crime wave has hit our 85,000 person suburb of Houston over the past few weeks. We've had four bank robberies and a family grill was hit one night just prior to closing. In all cases, the "bad guys" were armed. What might surprise some, is that all demographics were represented. This wasn't a minority crime wave, but a diverse crime wave. Two weeks ago a friend had his doorbell rung at 2 a.m. He went to the front door with his shotgun. While at the front door, he heard his back door handle jiggle. He ran to the backdoor and two white 20-something males were at the door window. He cocked the shotgun and told them in some choice words to hit the road. What did they do? They went two doors down and robbed the house where no one was home. A 11 a.m. last week, a white 40-something male (could have been me!) entered a bank with a gun and left with some cash. He ran out of the bank and jumped in a JAGUAR with a female passenger in the co-pilot seat. Were they Dick and Jane?
At a surprise 40th b-day party last night, the conversation amongst the males was about purchasing hand guns. Note, that the six males represented aren't a bunch of NRA groupies. These are guys with corporate jobs and families. I was shocked hearing how two of them had just been to guns stores this week researching what pistol would be best for security purposes. One of them chastized me two years ago for buying my son a shotgun to shoot skeet with. He said then "You're buying a gun for your son? You're keeping it in your house?" He's now buying a pistol to prepare for the revolution. Personally, I'm scared to death of guns. I've never hunted and I keep the skeet shotgun at my office.
In my post a few days ago, I presented the psychology of the investment cycle. I continue to conclude that FEAR is in full force. When the stable sane people start buying guns in preparation for chaos and social disorder, we all should be getting concerned and prepared.
Sunday, March 8, 2009
Injured Tsvangirai returning to Zimbabwe for wife's funeral
HARARE, Zimbabwe (CNN) -- Zimbabwean Prime Minister Morgan Tsvangirai will return to the country for his wife's funeral on Wednesday, a spokesman for his Movement for Democratic Change party says. Morgan Tsvangirai leaves the hospital Saturday after being treated for injuries from a car crash.
Tsvangirai was injured Friday in a car wreck that killed his his wife of 31 years, Susan. His party is conducting its own investigation into the crash, a senior official said. Tsvangirai, who recently joined a unity government with long-time foe President Robert Mugabe, was taken to Botswana on Saturday for medical treatment, sources told CNN. Tsvangirai's MDC party will hold a rally Tuesday in honor of Susan Tsvangirai, said Nelson Chamisa, the MDC spokesperson.
He called it "a send-off rally befitting a heroine." He refused to say exactly when Tsvangirai would return to Zimbabwe. "The president (of the MDC) will definitely be back in the country in time for the burial set for Wednesday and the other formalities that go with the funeral. But I cannot give the media his itinerary as that comprises his security," Chamisa said. A Botswanan government source and a source with the prime minister's party said earlier Tsvangirai was at a hospital in Gaborone, Botswana.
A truck collided Friday with Tsvangirai's vehicle on a a busy two-lane highway between his hometown of Buhera, Zimbabwe, and the capital city of Harare. MDC members told CNN that Tsvangirai believed the driver deliberately drove toward him. The prime minister told one MDC official that "the truck came straight for him."
"Women seem much more able to cope. Perhaps it is because they have less of their ego invested in the whole dubious enterprise, or perhaps their sense of personal responsibility is tied to those around them and not some nebulous grand enterprise. In any case, the women always seem far more able to just put on their gardening gloves and go do something useful, while the men tend to sit around groaning about the Empire, or the Republic, or whatever it is that they lost. And when they do that, they become very tedious company. And so, without a bit of mental preparation, the men are all liable to end up very lonely and very drunk. So that's my little intervention."
Saturday, March 7, 2009
Friday, March 6, 2009
But, I must confess that I made three purchases this week. Here they are and why:
-General Electric (GE): Are you crazy? Are you aware that they just cut their dividend 66%? Are you aware that they might get their rating slashed? Yes to all of the above. I like their position in infrastructure in the Far East and Middle East. At $6.70 per share, I decided to make a pilot purchase.
-Ford (F): Now you're really smoking crack! Well, here's my theory. One auto company will survive. Automobiles are the pride of our nation. Ford is the healthiest and the Feds will prevent at least one from dying. More importantly, I believe that Bubba will always want his F150 to drive. I bought at $1.78.
-The United States 12 Month Oil Fund LP (USL): I have a large position (for this little guy) in USO, also an oil ETF, but recent articles regarding the contango in USO concerned me so USL appears to have a better method for rolling over oil contracts. Basically, I believe that fear, hoarding, and geopolitics will drive oil higher in the future......and supply/demand might play a factor also :)
The forint dropped as much as 2.7 percent, the biggest decline since Dec. 26, to 307.52 per euro at 6:08 p.m. in Budapest, near the record low of 309.71 on Feb. 17. The Polish zloty weakened 2.5 percent to 4.7734 versus the euro and the Czech koruna depreciated 0.3 percent. Eastern European stocks dropped to the lowest in 5 1/2 years.
The forint has dropped 22 percent versus the euro in the past six months and 29 percent against the Swiss franc, increasing the “burden for holders of foreign-currency debt, further depressing the economic growth outlook and increasing the likelihood of stress in the financial system,” Fitch said today.
Thursday, March 5, 2009
I wish that I could have compiled the following piece. John Stewart captures the concept quite well. Moral to the story: do your own research; evaluate long term historical data (e.g. has this happened before? Is so, when and why?); make your own decisions....break away from the herd. Mammals that run in herds get trampled. Enjoy the video below!
Now big boy Rush Limbaugh. As most of you know, I don't claim a team. I voted for Ron Paul. Limbaugh, for years, just sits on his fat butt spewing venom and pouring fuel on the fires. His approach is destructive and it might explain his need to "pop some pills". I still remember listening to his radio show years ago while riding in the car with my favorite Republican. At the time, doughboy, was focused on the American Indian. I don't recall what his beef was with them, but I just remember him playing this "Indian chant" in the background.....very disrespectful.
As the tide continues to fall, we will be challenged by major negativity. Everyone wants someone to blame. Limbaugh specializes in this process. As I said in a recent post, "rise above" this behavior and take constructive action instead. In the near future, many will call on you to join their team and their cause. Choose wisely my friends.
SOURCE: Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, by Charles MacKay, Published in 1841
As the markets start to "rollover", we become anxious (1999-2001: stock meltdown, 9/11). This anxiety, fueled by the media, evolves into a brief state of denial (2001-2007). The realities appearing on the news every night transform into a state of fear (2007-present). The denial has ended and most realize that we have some serious problems that will take some significant time to resolve. The fear gets reinforced by the media and the constant replay of the progressing negative developments. The cycle forecasts that depression, panic, capitulation, and desperation await us.
So what should we do? Now that you realize that we're evolving through a natural cycle and you know what is coming next, then plan accordingly. Protect the things most important to you. Most importantly, remember that hope, relief, and optimism will always be waiting on the other side (2014-16). After the cold winter, spring emerges and fresh flowers are once again growing with their amazing beauty. Patience, knowledge, vision, leadership, relationships, and faith will guide you well.
Additional versions of the concept:
Sources: RMB Unit Trusts, thefinancialhelpcenter.com
Wednesday, March 4, 2009
Doesn't the calming music just lull you to sleep!
Tuesday, March 3, 2009
" Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone's guess, though one likely consequence is an onslaught of inflation. Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won't leave willingly."
"The freefall in business activity is accelerating at a pace that I have never witnessed before."
He does provide some optimism:
"Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America's best days lie ahead."
The entire letter can be read here: