Friday, May 29, 2009

En Echelon Faults, Dominoes, and The Fear Factor

An "en echelon" fault system is one where a succession of faults occur . The fault displacement process occurs sequentially versus simultaneously. Each fault displaces yet has impact on the next fault to form. In essence, it resembles tumbling dominoes. Each one falls individually, yet represents a continuous process of individual unique events.

In prior posts, I have discussed the change in mass social mood that occurs as the expansion cycle comes to closure and the contraction cycle begins. The mass social mood quickly changes from "happy and greedy" to "fearful and angry". In the fourth quarter of 2008 as the worldwide equity markets began to tumble, the "anger factor" kicked up another notch. Fear is running rampant across the world. It's an interesting exercise to look back to the inflection point in mid to late 1999 when the expansion cycle ended and align the major fear events with the DJIA/Gold ratio. Note the significant "fear events" that have occurred since the inflection point was crossed in mid to late 1999. Y2K was the appropriate kickoff to the contraction cycle. Everyone was fearful that the machines across the world were going to stop working and chaos would reign. The technical problem was real, but an aggressive approach was taken to minimize the impact. New Years Eve 2000 came and went without a peep with some real fearful events yet to come.

9/11 had significant impact on the U.S. and still does today. Xenophobia is now rampant and all Middle Eastern and/or Muslims are amazingly considered dangerous people. While no events have occurred in the U.S. since, we continue to have "orange" alerts announced by the Homeland Security office.

The imperialistic invasions of Afghanistan and Iraq engaged the U.S. military and temporarily aroused the patriotic spirit in America. I'm not quite clear why bombing other human beings makes us feel patriotic, but the America flags were flying high. Today, many question our continued presence, yet fear is alive and well.

Last fall, the financial fears kicked into high gear. The complexities of our modern day financial markets revealed the intertwined relationships existing across the world. This fear remains in full force today. I believe that the DJIA/Ratio is ultimately heading for the range of 1-2. This would mean that the Dow Jones Industrial Average will be worth one to two ounces of gold. Today gold is trading in the $950/ounce range. Time will tell. Think for yourself and turn your fears into concerns.

Wednesday, May 27, 2009

The Japanese Canary In The Coal Mine

There was a short article in Barron's this week interviewing Robert Prechter. After reading it, I'm sure that you will agree that his view of the world and frame of reference is very unique and not one you will hear on bubblevision.

Tuesday, May 26, 2009

Dr. Ron Paul On The Federal Reserve

From Congressman Ron Paul, in his weekly "Texas Straight Talk" column, posted on his House of Representatives website on May 18th:

"Fundamentally, you cannot defend the Federal Reserve and the free market at the same time. The Fed negates the very foundation of a free market by artificially manipulating the price and supply of money - the lifeblood of the economy. In a free market, interest rates, like the price of any other consumer good, are decentralized and set by the market. The only legitimate, Constitutional role of government in monetary policy is to protect the integrity of the monetary unit and defend against counterfeiters."

"No politician or central banker, no matter how brilliant, is smart enough to know more than the market itself. The failure of central economic planning has been witnessed over and over. It is frankly beyond me why we ever agreed to try it again."

"To understand how unwise it is to have the Federal Reserve, one must first understand the magnitude of the privileges they have. They have been given the power to create money, by the trillions, and to give it to their friends, under any terms they wish, with little or no meaningful oversight or accountability."

"Thus the loudest arguments against greater transparency are likely to come from those friends, and understandably so. However, it is the responsibility of every member of Congress to represent the interests of the people that sent them to Washington and find out what has been happening with our money. As the branch of government with the power of the purse, we really have no other reasonable choice when the economy is in the shape it is in."

Thursday, May 21, 2009

The Interest Rate Trend

"These trends—increasing amounts of debt, government justification for non-payment, increasing cost of borrowing, and debt monetization—only lead to a long-term trend of increasing interest rates." JAIME E. CARRASCO CFP

Entire article:

Wednesday, May 20, 2009

Zapata George On India

"Growth figures indicate the India is going to add 10 million people a year between the years of 2000 and 2030. That’s unbelievable. It really makes you wonder what’s going to happen to the per capita rate of energy consumption as these populations reach their projections. These expanding populations are going to start using up commodities and energy on a much higher per capita rate than they are doing now. In the US we consume 25 bbls of oil per person per year. In Japan, it’s 15. In Mexico it’s 7. But in Asia, the two fastest growing regions in the world, that figure is only 2 at the moment. But with the introduction of the Tata car, that number is going to take a leap forward. If it was a small population base, it wouldn’t be a big deal. But instead, it’s in an area that is home to 40 % of the world’s population. Those numbers become phenomenal. We really do need to think about what will happen when the oil shortages that are undoubtedly coming are upon is." Zapata George

How long can we (USA) continue to overconsume? 4% consuming a 25% share is unsustainable.

Tuesday, May 19, 2009

Crack & Credit

Through my involvement with Emmaus-Harlem the past few years, I've had the opportunity to spend time with several recovering crack addicts. My friend, D, shared his experience in the 80's with me when crack was at its peak. D said that the key factor with it's proliferation was price. He said that a hit of crack could be bought on any corner of Harlem for $10. He lived on the streets for over ten years and used his panhandling earnings on crack. While cheap, the high didn't last long, so it was a constant "rat on a wheel" trying to stay high.

We continue to witness the current worldwide unraveling of the credit markets. I often think of D's crack story and see a great correlation between the crack business and the credit markets. D said that he could find crack on every corner. We have 7 banks on the intersection near my house. Commercials on TV at night still advertise easy credit deals. Every time I'm in my bank, they're offering something to me. The crack dealer serves the crack addict. The Federal Reserve fuels the "bank dealers" that serve us, the "credit addicts". Like crack, for some reason our material items acquired on credit only provide us with temporary satisfaction. Once the high is gone, we search for the next hit.

The dealer and the addict have a symbiotic relationship. Without the crack addict, the dealer would be out of business. Both are doing something destructive and both must be held responsible and accountable. When it comes to our current crisis, we want someone to blame. We want the "credit dealer" to be blamed. Those with underwater mortgages want to blame the lender. I enjoyed my 0% car finance deal back in 2002, my mortgage refinance in 2003, and my home equity line of credit. While I haven't used the line of credit, the bank was glad to provide me the opportunity to drain the principal out of my house. Of course, they couldn't make me do that. I'm ultimately responsible for my actions and must take responsibility and accountability for them.

On a larger scale, our country has been high on "debt crack" since the Reagan administration. We have amassed a $56.4 TRILLION "crack obligation". We've recently taken an additional $2 trillion crack hit with an addiction problem that now seems more out of control than ever. It might be time for individuals, corporations, and countries to head to rehab. This addiction is unsustainable.

Back to the original story. Today, D serves as the onsite coordinator at Emmaus. He's a great success story. Once homeless, now he serves the homeless. His street experience and passion for the homeless ministry keeps Emmaus alive and active. To make a donation to the cause...

Monday, May 18, 2009

Nassim Taleb On Precious Metals

Nassim Taleb authored two great books "The Black Swan" and "Fooled By Randomness". After reading either one, you conclude that this guy is really bright. "The Black Swan" continues to be a hot "buzzword" for the unpredictable rogue wave lurking out in the future.

Recently, he was quoted on his prediction for gold and copper. Bloomberg states:
The current global crisis is “vastly worse” than the 1930s because financial systems and economies worldwide have become more interdependent, “Black Swan” author Nassim Nicholas Taleb said. “This is the most difficult period of humanity that we’re going through today because governments have no control,” Taleb, 49, told a conference in Singapore today. “Navigating the world is much harder than in the 1930s.” The global economy is facing “big deflation,” though the risks of inflation are also increasing as governments print more money, Taleb told the conference organized by Bank of America- Merrill Lynch. Gold and copper may “rally massively” as a result, he added. Taleb, a professor of risk engineering at New York University and adviser to Santa Monica, California-based Universa Investments LP, said the current global slump is the worst since the Great Depression that followed Wall Street’s 1929 crash.

Sunday, May 17, 2009

A Change In View

"The Treasury (Department) has taken on so much bad debt. There will be a slow, but very steady change in the way people will view the U.S. government." Robert Prechter

Source: Reuters 5-14-09

Saturday, May 16, 2009

Newton's 3rd Law

For those that are drinking the money printing and bailout Kool-Aid, I remind you of one of the most important natural laws:

Newton's Third Law
"Whenever a particle A exerts a force on another particle B, B simultaneously exerts a force on A with the same magnitude in the opposite direction. The strong form of the law further postulates that these two forces act along the same line. This law is often simplified into the sentence, "To every action there is an equal and opposite reaction." Wikipedia

Friday, May 15, 2009

The Illusion of Prosperity

from James Quinn:

"In order to get ahead in life you need to invest in assets that appreciate, not depreciate. Does the appearance of wealth and success really outweigh actually being wealthy and successful? Driving a $50,000 car doesn’t guarantee happiness. If it did, we’d be the happiest country on earth. Looking marvelous is a shallow, shortsighted way to go through life. That is fine for those who choose that route, but I’m tired of picking up the pieces of their shattered lives with my tax dollars."

"The biggest and most dangerous illusion for Americans today is that everyone deserves to be a winner. Everyone does not deserve a trophy just for playing. If you screwed up, didn’t work hard, didn’t save for a rainy day, and didn’t save for your retirement, then you lose. The winners studied, worked hard, lived within their means, and saved for the future. The winners have the option to help the losers through charitable means. If the government forces the winners to pay for the bad choices of the losers, our economic system is worthless. This is the reason that anger is building in the country. The Tea Parties were not about taxes. They were about anger towards our government for rewarding the profligate at the expense of the frugal."

"The American government and its citizens have to get over their illusion that they can spend their way to prosperity. According to 33% of all homeowners with a mortgage owe more than the home is worth. At least 67% of all homeowners with a mortgage have 15% equity or less in their homes. The average household has $23,000 of consumer debt. Six million car “owners” owe more than the car is worth. The median 401k balance is less than $15,000. Any economic recovery that is dependent on consumers to borrow and spend will just be a fool’s errand. The illusion of prosperity is coming to a tragic end."

"Beneath the finely groomed blissful suburban fa├žade of America lurk desperation, denial, hypocrisy, and anger. The kids of suburbia today have an entirely different reality than the suburbs I grew up in during the 1970’s. The suburbs have mansion-like homes with spotless interiors, entertainment centers, three car garages, manicured lawns, and no soul. The children of suburbia have been brought up on soda pop and Ritalin. They come home to empty mansions, as both parents must work to pay for the glorious abode. Our homes have gotten bigger and better, while our lives have gotten smaller and less satisfying. One third of all children in the United States are growing up in a single parent household. Many kids feel angry and disconnected from their families, friends and home. Fifty percent of all marriages end in divorce. The kids feel rage and hopelessness at their existence in a suburban nightmare. There are 2 million children who take Ritalin every day. Is this because they truly have ADHD, or it is the painless way out for overstressed suburban parents? Times have surely changed. Bigger hasn’t translated into better over the decades."

More from James Quinn

Thursday, May 14, 2009

The Snake Charmers

I was watching CNN the other night and they did a segment on Elizabeth Edwards new book. Mrs. Edwards, the wife of former presidential candidate John Edwards is terminally ill with cancer. The book addresses John Edward's affair and the fact that he might have conceived a child with his mistress. The segment noted that in the book, Mrs. Edwards focuses on the mistress and states that she seduced her husband. Adultery on your wife who is terminally ill with cancer. I can't think of anything more selfish and deplorable.

I have to ask today, when are one of these political wives going to stand up for women and rip the eyeballs out of one of these snakes at the press conference. Mrs. Spitzer looked capable. Hillary couldn't because she would have to dismantle the political machine.

I ask once again, aren't there some better candidates out there? Honest, moral, selfless, and hard working?

Ms. Wynette should have written one more verse to the song where the woman gives the man the boot.

Wednesday, May 13, 2009

A Quote On Gold

"The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice." - Henry Hazlitt

Sunday, May 10, 2009

The Hurricane Analogy

I find it interesting and very challenging in most cases to discuss a negative financial forecast with individuals. It is human nature for us all to be optimistic. I believe that optimism is a key survival trait for our species. With that said, there are times when we need to balance reality when making key decisions.

I think that the hurricane provides a very good analogy. History tells us that in the past, some storms have created significant damage and cost lives. From this, we've learned to evacuate to protect ourselves. We essentially have become smarter with time. I don't ever recall being called a pessimist because I believed that a hurricane was heading my way.

Having lived in the Gulf Coast my entire life, I'm familiar with the preparation process. The first step in the process is that someone knowledgable (meteorologist) presents a scenario where your home could be effected by the storm. Awareness is obtained. Step two, you put a plan together in case the hurricane does head towards you. That plan will include protecting your possessions and family. Only so much can be done to protect your possessions, but driving the family out of town is a proven successful strategy. Step 3 is to monitor the progress of the storm. The storm provides early clues such as increased wind speed, drop in barometric pressure, and tidal surge. All three of these provide enough warning to prevent loss of life.

Once the storm is confirmed to likely cross your path, you evacuate with your family and pets. Your remaining possessions will be victims of nature's wrath.

Now that we've successfully survived a hurricane, use the exact same process for your family's financial well being. The only difference is that the meteorologists have a range of opinions. Educate yourself and then select the storm forecast that you believe to be most likely. But, like a hurricane, have multiple plans in case your forecast is wrong.
Lastly, don't be the person left on the rooftop or sleeping in the Superdome. Hurricanes have hit the coast for ever, so don't assume that one won't be coming this season.

Saturday, May 9, 2009

The 100 Day Report Card

The media appeared to focus most of this week on the conclusion of President Obama's first 100 days. I guess that the Mexican pigs have disappeared for now. Most of Team Blue appears to be relieved that they survived, while Team Red is mad as hell. Take off the team uniforms and lets take a crack at it. First of all, it's obsurd to assess the first 100 days of anyone taking any job. But, lets give it a try.
My survey says:

-Effort: A
The new administration didn't sit around much that's for sure. While I disagree with almost 100% of the decisions made, I give an "A" for effort.

-Presentation/Communication: A
We can't blame them for not being visible. Two world leader summits and many press conferences provided information. While none was that positive, we have to say that they were visible and provided information. No matter what team you claim, you have to agree that President Obama's articulation skills are light years beyond that of Dubya's.
-Cabinet Selections: C-
Is it really that hard to find moral, honest people that didn't evade taxes?
-Fiscal Responsibility: F
The travesty that has taken place regarding the bailout of our corporations is criminal. Once this becomes evident to the sheeple, it will be way too late to correct. It's actually too late already.

-Strategy: D-
I was being generous with the D-. The platform of "change" during the election campaign has been "missing in action". Yes, a lot of surficial change has been presented as a facade. But the two major problems remain: (1) the Federal Reserves printing of money and (2) our quest for imperialistic dominance in the Middle East. Actually, there has been change, but it has been in the wrong direction. The printing of money has greatly accelerated to catastrophic levels and our Middle East "heartland strategy" is quickly growing into Pakistan and Iran. These two factors are very significant. Printing money to then lend to corporate dinosaurs is a powder keg waiting to happen. Our grandchildren might not even be able to recover from this one. We must remember that as presented in IOUSA, this administration just added 2 trillion to AN ALREADY EXISTING LIABILITIES AND UNFUNDED PROMISES OF $56.4 TRILLION.

-The 1st Family Pooch: C-
I've never heard of this water dog breed. A Golden Retriever would have been the ticket.

Friday, May 8, 2009

Closure On The Confession

On March 6, I made a confession. This morning I brought most of the wild speculation to a close. After reviewing the March 6 post, I realized that I did not document the Deere purchase. The reason for that buy was aligned with the forecast for hyper-inflation and growth in localized agriculture, or as one analyst put it "gold, guns, and groceries".

It was a miraculous run, but the slope of the sand pile just looks too steep to me. My mentors at Elliott Wave International believe that we're in wave 2 of 5 "ups" with a potential peak at 10,000 for the DJIA. If they're correct, then another buying opportunity should exist after the wave 2 correction. It has to be close. The hype and euphoria has quickly returned. And then after that? The Great Head Fake.....more on that later.

Thursday, May 7, 2009

Fiji: The Land Of Paradise??

When I think of Fiji, I, like most people, think of an island paradise. A year ago, in route to Australia, I spent 30 minutes on the tarmac refueling there. The islands seen from above are incredible.

The latest news out of Fiji is not as beautiful. It falls in line with prior posts referencing the shift in mass social mood across the world. The Wall Street Journal reports the following:

SUVA, Fiji -- "Military-ruled Fiji remained defiant Saturday after its historic suspension from the 16-nation Pacific Islands Forum, rejecting the 'punitive action' for a delayed election and warning it won't be deterred from its chosen path even by 'adversity.' The coup-plagued nation was suspended from the regional bloc Saturday for what the forum called its rejection of democracy, freedom and human rights."

The entire article from the Wall Street Journal:

Tuesday, May 5, 2009

The Treacherous Road To The Blind Side

A few years ago, my friend JD recommended that I read the book Blind Side by Michael Lewis. It's a true story of a homeless black boy wandering the streets of Memphis. Abandoned by a crack addicted mother, Michael Oher somehow survives in the street on his own without any support. A friend's father decides to take his son and Michael to enroll in the elite private Christian school, Briarcrest, on the other side of town. Amazingly, he's accepted as a special needs case and by great fortune is taken in by a caring family, the Tuohys. With great assistance and love, Michael graduates from high school on the honor roll and with a very promising college football career ahead of him at Ole Miss. At Ole Miss, he had 74 straight starts (3rd in NCAA history) and led the Rebels to victories over Florida and in their bowl game in his last season.

The story got better last week when he was drafted in the first round by the Baltimore Ravens. Homeless black child wandering the streets to 1st round draft pick in the NFL. It's not the typical story, but it's one where you can say "only in America". The book is a great read not only covering Oher's life story, but also documenting the evolution of the left tackle position in the NFL.

USA Today article: