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Financial news I consider important, with my opinion, which is worth as much as you paid for it.
Please click HERE to read a synopsis of my view of the financial situation.

Sunday, October 31, 2010

This lifetime in charts

In preparation for two critical events, the US elections and The Federal Reserve Bank's announcement on QE2 this week, I am posting charts on a long term horizon.
The goal is to show some critical levels that if broken, people with ANY conviction should rethink their perspectives.

You like gold? Like USD? Think the stock market is great to invest in? Fine, any may be correct. But on the scale I positioned these charts, if the lines drawn on crossed, I urge you to reconsider the reality you believe in.

In any event, Good luck on investing your future, to the charts!
NOTE: I posted some charts from The Chart Store.com, it is a PAY site to see their charts. The owner is gracious enough to allow periodic postings of the charts. I rarely post from this site, due to it is a pay site. I urge all investors to have some sort of service to help keep perspective.

To the charts!

Vote for the individual, not by party lines

I have become unhappy with both Republicans and Democrats. Both have excesses, fiscal irresponsibility, and both have questionable records on corruption.

My message is to vote not by party lines, but for the individual. This election day, if you are a voter who believes Republicans are fiscally responsible, and Democrats are not, I encourage you to look at this link (click) and watch the video below.

For those who where against the wall street bailout bill, click here to read my post showing the voting record, and vote accordingly.
Also, I would rather

Saturday, October 30, 2010

Commodity Prices

The CNNMoney article Fed's Tax on the consumer highlights the rising commodity prices of corn and cotton prices in the last two months. Corn and Cotton prices have skyrocketed by 35% in 8 weeks.

From WebSufinMurfs FinancialBlog2

The knee jerk reaction is doubt there is unprecedented demand for these commodities, making it an organic price rise in the current world economy climate. The obvious question is what is then driving prices to rise?

The article highlights the Federal Reserve Banks loose monetary policies and links the rising prices to loose money. While I do agree with this conclusion somewhat, reducing complex marketplaces to a single simple analysis can be dangerous.

The logic goes that with loose monetary policy the large banks and investors are cautious to put their money into stocks and other assets that have already risen dramatically in the last year. And placing investments in physical assets, such as corn and cotton, is a safer "pile on" for the next asset bubble to be blown.

Again, I am not dismissing this argument, but I do challenge that this is the primary driver.

To look for other drivers, lets look at corn and cotton, how do these commodities differ than say, Lima beans? Corn is used as food......oh yea, and due to Mr. Bush's wisdom it is used for fuel now, funded BY the government money.

Therefore as the government pumps trillions of dollars in the economy through poor spending decisions, one of them is to pump money into backing the idea that Corn is fuel.

Farmers are in fact, investors, and choose crops with the brightest outlook for profits. As oil prices have stabilized and start to rise, the cost for ethanol becomes a cheaper alternative. When oil was at 60 bucks a barrel, ethanol has less of a competitive advantage. Couple the price of fuel rising with government handouts to promote the consumption of ethanol.......is it a wonder corn will get more expensive over time?

So how does this affect cotton......if demand for corn goes up, and there are more "consumers" for corn, farmers switching crops have to drop the next biggest cash cow crop, cotton. Plus there are arguments for global demand in third world countries etc. Again, I want to avoid presenting that we can simplify the cost driver to just "two" things.

But I do want to avoid the over zealous froth I am starting to see that the Federal Reserve Bank is the cause of all market issues. While I agree, the Federal Reserve Banks unholy access to the financial system is by far one of the biggest drivers of financial bubbles and financial dislocations, I also want to avoid simply placing all blame for any bubble that forms in the private sector.

What does this have to do with investing? Next week is the Fed's big QE2 announcement. And I hope that Mr. Bernanke reads the CNNMoney article and views it according to answering problems with what you know. For while I caution readers to avoid classifying all problems derived from the fed, I do encourage Mr. Bernanke to view it as such, and curb his market interference.

Friday, October 29, 2010

State Attorney Generals call large banks based on fraud

Todays Saturday video is calling Wells Fargo business model based on fraud.
I find this video almost humorous. I have been stating the banks are based on fraud since 2006, and many others have been saying this since as far back as 2004, specifically, by the FBI itself.

I'd like to ask this Attorney General, how the heck the courts have been foreclosing for YEARS, and NOW they are saying the papers aren't in order?

I APPLAUD any bank that can get their way in court. It is up to the court to ENFORCE the law. This Attorney General is appalled by what is happening? What a joke.

Where was the Attorney general 6 years ago when the loans where being made without proper paperwork? When the mortgage weren't being transferred correctly? When assets that the government recognized at face value, didn't have proper documentation to prove ownership of the underlying assets? Where was the government now when accounting standards have been "temporarily altered" since 2008 to not value assets according market value and instead allow financial companies to merely state their value? I really could go on for probably a page or two. But I do applaud the Attorney General for doing his job, once it is obvious to everyone that to date, the law isn't being enforced, and now its time to talk tough.

I'll get optimistic as I have stated many times, when accounting is returned to standards held since the Great Depression, mark to market accounting. And all debt is taken off book and placed onto book, with debits marked against credits. Until then, its all one big paper shuffle.

Wednesday, October 27, 2010

Market Challenges and Resource Trends

The election day is November 2nd, where the political landscape in America may shift. On November 3rd it is expected the Federal Reserve bank will announce their plans for flooding the market place with billions if not trillions of loose money creation.....or NOT.

Between now and November 8th, I expect we may see some market volatility. There is much at stake in both events, and how those events will be perceived by US creditors and financial pundits spin.

On October 15th, I dumped 1/2 of the mining positions, and I have held fast to not buying in until I get a clear sign of direction. The US Dollar bottomed coincidentally on October 15th (well, not too coincidental, one of my reasons for dumping), and the US dollar is on the climb, slowly.

My two cents is there is no reason to jump in front of so many unknowns with both feet. Having some skin in resources in case there is a sudden shift is prudent, but there is no reason to go in deep.

I am NOT a fatalist, a destiny person. I am willing to accept gold has peaked, and the US dollar has bottomed for the rest of my life on October 15th. I don't believe that is the case. The dollar and gold DO NOT have to play nice during what I think may be a long term US dollar devaluation.

So for now, I sit, and watch what positions I do have lose in value as the dollar strengthens. A break of gold to new highs is a good sign time to jump in with both feet. Otherwise, we are all trying to catch a falling knife by adding to positions in resources. I did enough of that last year trying to pick a top in the markets with banks. That didn't work out well, lesson learned.

For your digestion, a few charts of the last 30 days action.

Tuesday, October 26, 2010

Technology, the ultimate destructor of inefficiency

This post is a continuation the series of topics I am covering, which will culminate in my view of where the US dollar is going and why. Previous posts include Value of Government and it's Currency, Human nature is to react rather than prevent, Answering problems with what you know, and Is the US government owned by banks.

First, let me state I have been a computer programmer since the age of 13. Needless to say, my view of technology and it's effect on society is a bit skewed than the average person. I of course, think I have more insight than the average person, you be the judge after reading this article.

Computerization of business processes has been a core driver of technological advancement. The very first computer was ENIAC. The purpose was to in effect, be a giant calculator for military purposes. Before the ENIAC, what was done for massive mathematical computations was to divide 1,000s of calculations among a 100's of people to compute. Those calculations where then fed back into the "people calculation machine" for the next set of equations. This was repeated until the objective values where reached. Then, a scientist, mathematician, etc, would review the results, derive some meaning, then repeat the whole process for his next calculation required to solve whatever problem was being worked on.

The ENIAC was used to streamline the massive math computations required around developing the first Atomic Bomb. It is very fitting that computers was born out of such a need.

In effect what did the ENIAC do? It replaced an army of people doing a repeatable task with a "computer". It in effect, improved efficiency by speeding up problem solving time and reducing cost. Ever since then there has been an unstoppable force invading every crevice of society by improving turn around and reducing cost.

We have seen telephone companies such as AT&T come toppling down as telecom is computerized, becoming a commodity. Companies like Google the dwarf advertising industry like no other company in history. Companies like WalMart, that through computerization, has created an automated distribution system starting in china, and rippling through out the world. Creating a delivery system requiring extremely low inventory requirements for the retailer.
I could go on and on, lets now get to Financials.

We have seen arbitrage been reduced from days and hours down to sub-second trading. We have seen the stock market go from zero percent traded by computers to over seventy percent of all trading is done using automated computer systems with no human real time direction. We have seen the US stock market lose value in seconds, with many trading in the pennies this year, int he "flash crash" blamed on computer trading.

We know now that Goldman Sachs has a vast network of super computers with high speed data connects allowing it to do massive trades at sub-second levels. When this was developed it was not widely known, and only came to light in the last year, and was dubbed High Frequency Trading.

The financial system trades with such agility, such automation, at such a ridiculous speed. The equities of the companies that are being traded do NOT reveal their financials on sub-second level on a second by second update. The information distributed to the public is generally once a quarter. The creation of money is announced through the Federal Reserve Bank, and is executed on a somewhat planned interval. The US government announces it's budget once a year, with some ad-hoc revisions.

The general point is the trading system is vastly faster, more agile, and more automated than the companies and countries that it represents. The trading arena has been twisted into a computer game, with it's own rules. We have seen computerized trading wipe out vast amounts of waste and arbitrage in the last 20 years. Every microsecond now is traded against, where just 20 years ago you would phone in your order to the NY Stock exchange for someone on the floor to use a hand signal to trade the stock.

The disparity of the trading platform, and the slow data dissemination to the public about the companies and countries cannot last. Computerization will expose this inequity through a crisis. Further, any action done by a person, such as Ben Bernanke of the Federal Reserve, will be acted upon with greater speed, greater volume, and greater volatility as time goes by.

In effect, it is my opinion, that we are seeing the older guard, the analog structures in the financial markets pitted against super computers. And I believe the computers will win this battle. Having a group of people meet once a month to decide the interest rates, volume of money to be printed, and change laws to "fudge" their outcome will not stand against the technology they face.

They are not changing their approach, and until their processes are computerized , they are fighting a battle that they will lose. For they are inefficient, and will be replaced, just as the ENIAC did with the 100's of human computers.

Lets just hope the financial computers are not building a financial atomic bomb.

Monday, October 25, 2010

Time to buy back Gold Miners already?

It is looking like the US dollar is on the verge of resuming its decline, failing to make a significant bounce higher as I and others expected. I REALLY thought the US dollar would continue to move higher, above 80 before failing.
But as they say, you trade the tape your given.........

If the USD resumes its decline and breaks below 76 (click here for real time charts), then, its a good sign to go 100% back into resources. Gary of the smart money tracker is likely to jump back in tomorrow if Gold firms up, before end of the trading day. I am really on the fence here, I have been whip-sawed many times before. I have decent positioning in natural resources, just not loaded to the max. Safe to say, if USD plunges below 76, I am 100% back in, and between now and then, eh, I'll see how it goes.

When the USD breaks below 74, I am scared of an accelerated decline, which I really hope won't happen. But between expecting the USD to make new highs, and new lows, my expectation is new lows.

Sunday, October 24, 2010

This Week in Charts

This week is setting up to be very interesting. Does the USD resume it's climb upwards or fail? If it resumes up, likely stocks will fall. Will 10 year bond rates break above the down trend line?
Will gold resume its climb or continue its fall?

I will try to use this chart format from now on. The movements are shown in a weekly summary in the form of a "candlestick". The red shows a week that lost value, the white a week markets gained that week.

To the charts!

Wednesday, October 20, 2010

Trillion dollar fraud allegations

The title of this post may seem a bit over the top.
Karl of the Market ticker has a must read on his blog, click here to read.
In essence, the top 5 banks, as part of mortgage gate, may have over a trillion dollars in mass fraud-ed securities.

If this is true, what has in effect happened, is pension funds and other long term savings plans have in effect been already robbed, and we as a society won't find out until the notes are cashed or if the government actually started to enforce the law.

Video from the post.

Tuesday, October 19, 2010

In Sync with Gary of Smart Money Tracker

I have been following Gary of the Smart Money tracker for quite a while. Since August, I have been in 100% agreement with his private newsletter. I strongly recommend everyone subscribe.

In any event, I posted late August Ditto Head, basically announcing that from that point forward, I am a Gary convert. Last week I posted I'd likely sell on Friday, in expectation of a gold pullback, and I did sell. Today was the day gold started correcting.

I am also in agreement with Gary on how this is going to play out. The markets will fall as the dollar rises. If the government was to behave itself, my friend John would be correct, the dollar would be best place to invest. I am in the camp with Gary, Bernanke will not sit on his hands and allow the markets to behave as they should.

Instead he and the US government are going to meddle in something they have no business meddling in. I have no idea what form that will take, maybe as discussed "QE 2", or some other program to basically destroy the US dollar's value.

And this is the heart of where I believe all of this speculation on US dollar future value. The question is, will people change the law, ignore the law, and or actively gain support to destroy the US dollar. In the world I live in, this most certainly can and will happen.

I have ZERO faith that those who have brought us here will change the behavior that they have since college. It is a RELIGION to Mr. Bernanke that he is right, based upon NON-THINKING, one dimensional, belief system. Therefore he and others that support him will continue to operate on that one dimensional path until outside forces physically stop them.

An interesting excerpt from Wikipedia on Bernanke:
The Bernankes have two children. They refinanced their Capitol Hill home in late 2009 because they "had an adjustable-rate mortgage and it exploded." Now they have a 30-year fixed rate mortgage at a rate of a little over 5%. Bernanke and his wife own one car, a Ford Focus.[24]
This to me shows he is an academic and not a realist. And quite possibly by changing to a fixed rate recently, maybe he now HAS a clue on what he is going to do to us and the world. But I digress.......

Therefore to change course it is quite likely we must have an all out US dollar crisis. He is not capable of material change to alter course. (click to read)

I don't blame Bernanke. He is a person who's destiny in life is to speak keynsian economics. It's like blaming the pope for worshiping a false god. It isn't reasonable to expect anything different than their life's work.

Of course, with all my negative view of what we have in store for us, I can't say there is NO chance to change course. It is quite possible that this time, the Federal Reserve Bank won't take us and the world down to the next level into the abyss. I do mean it, it is possible they will stop themselves.

But I must keep my opinion based on fact. The fact is Bernanke has had one mode of operation, started by Greenspan in the 1980's. That is loose economic policy and abuse the US dollar as status of world currency. This is not a crisis that has been built since 2008, this has been in effect since 1987 when Alan Greenspan took office.

And until I see a new side if Bernanke, I must do what is logical, assume the same approach as what has been taken since 1987. To do what they know, and not what is right.

Gold chart below, I am not worried until Gold crosses below 112. If it goes that low, I am willing to rethink my opinion. And no matter what your view, place some sort of warning level that you promise yourself, if it crosses that threshold, you too will re-examine your opinion.

God help us all if I am right, and god help my son and the future generation. We will owe them a big apology.

Monday, October 18, 2010

This Week in Charts

This week in charts. I took profits on 1/2 gold and miners, hesitant to jump out more.
Quite possible market about to correct downward.

In any case, to the charts.

Sunday, October 17, 2010

Value of Government and it's Currency

The purpose of any government is four broad areas in my view is:

1) Provide a method where the citizens under the government can agree upon laws to ensure the public discourse. (Legislative Branch)
2) To provide a central authority to enforce the laws agreed upon evenly across all citizens. (Judicial Branch)
3) T represent the citizens as an entity or as a single person talking on behalf of the citizens (Executive Branch)
4) To provide services common to the citizens.

Notice, I do not have an equivalent federal entity to manage number 4. The services exist under each of the three branches, in some fashion. It could be argued that number 4 has no place in government and should be provided by the private sector. It could also be argued that an additional branch representing "bureaucracy services" should be created, and treated more like a corporation, with goal of maintaining efficiency.

In any event, those 4 areas are the purpose of the government as I see it, with item 4 as debatable.

With that said, the VALUE of the government isn't merely having people in positions to provide the vehicle for the services described above. It is actually executing and applying rigorous enforcement for their areas of responsibility.

Countries that do not rigorous enforce the laws, but treat their positions as a privilege class that may operate without any oversight are often described as "banana republics". Such governments exist by the direct support of money interests (corporations), funding the government to do their bidding. The law is arbitrary, applied to the individual or corporation as the government sees fit, typically not enforcing for those companies that are on the "right" side of the political landscape.

Referring back to my post , "what is money" series, these countries often run into problems with their currency valuation over time. For countries that regard the concept of law with respect and rigorous enforcement, the promise of future repayment for services rendered today (money, debt notes) has a higher expectancy to retain value than those that rely on a few politically powerful corporations.

The problem with banana republic currencies is, the citizens willingness to honor the status quote or the corporations relative power change over time, destabilizing the status quote. The realization that the existing structure can be swift, resulting in a stable currency experiencing a collapse due to the broader citizens losing faith in the future of the of the political landscape. In summary the true value of currency is derived from is perceived capacity of the government to provide work on demand in the future.

A rigorous framework where people voluntarily submit themselves rather than relying on a few corporations to generate the capital to maintain a stable government, provides a long term stable currency.

And this, is the heart of my view about why the US currency may have a valuation problem in its future. The value of the currency will be reasonably maintained as long as those accepting the debt notes believe the power structure is such that the currency will maintain the power to demand future work.

For more on money, and the concept it is a tool to capture work done today, to be repaid in work in the future, please read my what is money, post and subsequent related links.

Below is a video of Elliot Spitzer talking about the rampant, blatant lack of law enforcement across the entire US related to the banks, and mortgage secularization.

Saturday, October 16, 2010

Human Nature is to React Rather than Prevent

Human nature is such that the default behavior is to react to issues, and not spend energy to prevent a problem from occurring.

There are many good reasons to operate in such a way. For example, what you think is destined to be a huge problem, I may see as a non issue. Such debates on decisions fall into the political arena to decide. There is no clear cut answer that can be scientifically proven beyond a shadow of a doubt to be justification for acting before a problem occurs.

Example, your health
As a quick example, we all know that being over-weight increases health problems. Yet are you as fit as possible? Do you have a washboard stomach? Why not? Study after study has shown exercising and keeping fit will lead to a healthier, longer life.

The answer is simple, although statistically you are at risk, there are still some people, no matter how few, where overweight doesn't seem to adversely affect them until well over 70 or beyond. Therefore, all of us justify our lack of being at an ideal physically may not be a problem.

Now, how many people after having a near death or mild stroke experience lose weight and exercise? I don't know the statistics, but I'll but anyone 100 bucks the number of people who get serious about being healthy is higher AFTER having a close call with death or impairment, than those told by their doctor proactively improve their physical health.

What does this have to do with financial investing
I believe part of the financial crisis that was originated in 2000 continuing to today is due to Human Nature to react. Each legal entity in the financial area contributes to the situation with What they know, rather than the best answer.

Ranting and yelling by the FBI, by the US comptroller , or by the people (blogs) can have an influence, but not change the course. The participants will continue to respond with what they know, until it is proven, beyond any shadow of a doubt, and society demands and enforces change.

And therefore the financial and political trajectory MUST come to a huge failure, due to human nature, to have meaningful change. The manifestation of that failure, is debatable.

What about the exception to the rule?
There have been leaders who truly lead, rather than reacted. However, people of such character and independence are scarce in today's US government. Those that are in the government that have an independent, righteous attitude are often cast as fringe, or dismiss-able. They are labeled extreme, or unstable.

So while it is POSSIBLE that the world financial issues will not result in a crisis moment, the US government has not shown the capability to do so. I have well documented each step of the US government in my Financial Ground Zero series.

This post will be used in a subsequent post to make a case for a US dollar failure.

Friday, October 15, 2010

Lightened up on resources

With gains I quoted in post 7 weeks later, I cut 1/2 my positions.
I was leveraged to the gills. I can't watch all the gains just go away.

I was positioned to dump today anyway, as previously mentioned, and email from Gary of the Smart Money Tracker to subscribers pushed me into action.

Who knows, just FYI for readers.

Is US Government is Owned by the Banks?

In the history of politics, I dare say 99.5% of all political bodies are heavily beholden to the industries that fund those parties. In a country like Saudis Arabia, the oil companies majority the dominating of influence of politics. In Afghanistan, prior to US occupancy, by far the largest influence would be the warlords selling their poppy seeds abroad. You can go through each country, look at it's prime industry and you will find undo influence in policies.

In the USA, there was a time when manufacturing owned the USA. From the 1950's through 70's, it is clear that manufacturing and local industry ruled politics. Remember when tobacco was given by doctors as a sedative to calm nerves? Even when tobacco was becoming regarded as a health threat, it took decades to get tobacco labeled with a warning. This is no accident. Many US states where funded by the tobacco industry and resisted any changes that would adversely affect it.

For various reasons, the US manufacturing base evaporated, that can be a topic of a different, long winded post. Between the 80's and today, it is clear the largest influence on American politics is the financial industry.

To prove a point, lets take a look at last week. If you haven't heard already, it has been exposed that banks have not been keeping legal documents on the housing it owns, for a wide variety of reasons. One theorized reason is such documents, if produced, could be used to prosecute banks for fraudulent loan practices.

In any event, the problem has been dubbed MortgageGate.
The solution should be straight forward, enforce the law. The banks knew the law, and had to track houses worth upwards of millions of dollars with proper documentation, just like me and you must. Therefore, a bank should not be allowed to foreclose on a home without producing proper documentation.

In the absence of proper documents, the process should be the same, as if you lost your home ownership paperwork, and had to re-establish ownership. States across the country are finally taking notice, and stopping the foreclosure process in light of the lack of law process.

How SAD is it, that none of these states enforced the law, until this came to light through internet media and small media outlets.

Mortgage Gate Reaction by US government

The US congress and senate passed by a VOICE vote a new law HR 3808 called the Interstate Recognition of Notarizations Act of 2010 that would in effect, absolve banks from having proper legal documents to foreclose on any real estate. This act was waiting for President Obama's signature, when Mortgage Gate exploded across the internet. Thankfully, the exposure of the government altering legal process and excempt banks from following it, applied enough pressure for Obama to not sign the bill.

NOTICE, President Obama did not VETO the bill either! By not vetoing, there is room to come back at this after the mid term elections. Further, President Obama is against states halting foreclosure processes to review gaps in the legal process.

As for halting the foreclosure process, I for one believe this actually benefits the banks. By not allowing foreclosures to proceed, banks many continue to record the bad loans at full value, and not realize losses until the foreclosure completes. In a strange way, I think the banks wanted foreclosure gate, as an option to stop the realization of losses. But I digress.

Now that the US government failed to pass laws to make it easier for banks to foreclose without documentation, Mr. Ben Bernanke of the Federal Reserve Bank is chiming in.
As a member of a private institution, and not part of the federal government, frankly I don't see how the Fed has any standing to weigh in on this problem. Further the Fed is part of the private banking system, screaming conflict of interest.

Mr. Bernanke is starting the news engine to set the stage to rework the process, in what I imagine will be in favor of the banks. Let me be clear. The US congress can be the only entity to pass federal laws and to spend US taxpayer money according the US constitution. As previously documented on this blog, the Fed has in fact, spent US taxpayer money by backing non-federally backed bad debt notes. Now I am waiting to see how the Fed can rework the foreclosure process for bank benefit, without having the power to pass laws. I expect the spin will be a "banking process clarification", or something to that effect.

Is US Government is Owned by the Banks ?
Consider what you just read. The US congress and senate passed a law to allow the banks to foreclose without required legal documents EN MASSE, in a manner that has no record of who voted for the bill. This to me indicates the congress knew this law was just plain wrong act on their part.

By the grace of the internet and getting the word out about this law's imminent passage, President Obama did not sign into law.

The US government has taken on TRILLIONS of dollars in bank debt, and made it the problem of the US people. Further, the US government has not enforced law process in either creation of mortgages, or foreclosing on those same properties.

Further, banks are allowed to have a "special" accounting standard that in effect, allows the bank debts to not be valued using the common practice of "book value", but rather stated value. This change was enacted as an emergency measurement over a year ago, and still remains today.

There are many reasons why above is being supported by the US government.
The likely answer is lawmakers answer with "what they know" which is, changing laws. They are member of legislative and not judicial branch. As such, the politicians easier answer is to change laws, rather than get aggressive and apply pressure on the judicial branch.. I am not excusing the lawmakers actions, but rather explaining human nature is try to take the quickest, least effort, way to resolve a problem.

The other possible answer is lawmakers are "owned by the banks", and beholden to the money driving the US.

Either way, it isn't good for the common persons bottom line.

Thursday, October 14, 2010

Answering problems with what you know

A huge problem in human kind is people tend to answer problems with what they know. The RIGHT answer is to answer a problem not just what you know, but also what you don't know.
The RIGHT answer is, the best answer, and should not be limited to what you know.

Above may sound a bit confusing, but I notice this as a problem in every facet of my life. As a very basic example, lets say you asked me how to run a small business. I would answer by organizing every aspect of the company using computer software. Someone else may answer using pre-software era solutions. Someone else may answer some hodge-podge of the two. Yet someone else may answer that running a small business is a bad idea, and give 100 reasons do not do it.

Every answer above in their own way, is correct. But RARELY do you find a person smart enough to answer with an answer they have no experience with as a solution. A great example would be if you asked me, I'd say use Google and find the top two highly rated book on Amazon on how to start a small business, written in the last 6 years and read them.

That answer, shows I am depending on others to have a better answer than my view of the world. And by reading the top two highest rated books on starting a small business, you will leverage the opinion of 100's if not 1,000's of Amazon book readers opinions. The books you target have a much higher probability of being informative, and you will likely gain insight into the best answer of how to start your successful small business.

Again, I can't stress enough how in every facet of life this is a core problem. Some doctors always answer with pills, or past experience. Rarely does a doctor advise "in this case, seek alternative therapy", etc. There is a practical side as to why humans behave this way. Prior to 20 years ago, frankly it would be too much effort to seek "what you don't know" to get the best answer. The effort to try to figure out what the right answer would likely not yield enough benefit to bother. Any answer tends to be somewhat right, just not usually the best.

You would have to go to a library, or some other institution, and out of that SUBSET of knowledge, try to figure out which book is best. Or maybe ask friends and try to network to find a person with ample experience to help you gain insight. And even then, what is the chances the person you find is TRULY that enlightened to give a significantly better answer than just muddling through yourself. Not to mention the cost of engaging a person may be high.

The world has changed
We can now answer, quite easily and cheaply, with what we don't know. The generation under 20 years old will become true experts on answering with what they don't know. I doubt anyone growing up exposed to Google will rely on a book in the library, or physically calling people to seek advice.

They will simply use Google, seek out forums, wiki's, blogs, twitter, or a dozen other methods of communication to gain insight.

One extreme example is CROWD SOURCING. A very popular example comes from china, where a video found shows a woman killing a cute kitten. The internet users rallied to find this woman and punish her. using 1,000's if not millions of participants watching and researching, the woman was found. Granted, this example isn't directly leveraging problem solving, but it does show how something that was impossible just 10 years ago, was done, with near zero cost, by people motivated to find the answer to "who is this woman in this random video".

More mundane examples is blogs and forums dedicated to discussing, dissecting, and distributing information. Another great example of the internet is Wikipedia for documenting "facts" and wiki leaks for allowing information to be accessible to the world, exposing corruption and "evil".

What does this have to do with investing?
One aspect of what I believe we are witnessing is the final assault on the old guard of financial processes. The existing approach is under immense strain as a core, select, few are given the power over the many. The approach of answering problems with what you know will fail in this ever moving, technologically fast world.

The Federal Reserve Bank is a prime example. The Fed answers with what it knows, and how ALL financial problems are solved in the same manner. Either print money, loosen monetary policy, ease credit restrictions, or use any means in its power to "stimulate" the economy. The Fed is trapped by it's own boundaries, of answering the financial issues of the US and the world by it's experience. What is needed is to fix the issues by society improving and enforcing laws, and by politicians leading the nation, not relying on the Fed to "fix this".

For future posts, I will use this sociological description to explain some of the dysfunction we are witnessing, the problem is "people answer with what they know".

This is one of my foundations for arguing against the US dollar, and why it is destined to fail. All entries in this series of posts I'll add the label "Financial Revolution".

Wednesday, October 13, 2010

Ditto Head - 7 weeks later

I realized in my post Ditto Head, 1 month later, I made an error in my spread sheet.
The prices reflected in that post where changing to be current price.

So I am reposting how the resource positions have done in the last 7 weeks.

NOTE: The US dollar continues to break down, but everyone is expecting a bounce, probably starting this Monday. For now, its Gold hitting hew highs, resources climbing, stocks mildly rising, and fixed income rates falling.

Resources are the clear winner the last 7 weeks. But I expect a punch back soon. After all, markets don't travel in a straight line.

I would not blame anyone taking some off the table friday if gold rallies to new highs.

Also, Max Kaiser may be a bit fringe, but gold did hit 1380 an ounce today, nice call.

And if anyone out there was smarter than me, and held all their gold and mining positions from my original post in 2008, below is the results
CLEARLY, this sector has outperformed by anyone's standard compared to other sectors or the market.

Max Kaiser Video

While I take anything put out by Max Kaiser and others with a grain of salt, I do find his style entertaining to watch.

Quite a bit of what is said here is true. But that doesn't mean the conclusions of what will happen to US dollar are true. I happen to agree dollar is doomed, sooner than my friend John thinks. But really, who knows the timeline for such a disastrous turn.

Volatility Index

Considering all the data I read, and how the financial world has turned on its head since 2008, I am pretty amazed at the VIX.

I could see after a relentless move from the low to the market high after a year of going up the VIX hit these levels. But since then the market has shown it can move in a down direction. Yet the VIX is back to levels experienced before market problems.

Picture as a FYI.

Tuesday, October 12, 2010

World Clock

This post has almost nothing to do with financials. Just a goofy clock with tons of statistics.
By no means do I vouch for it's accuracy.

Saturday, October 9, 2010

Case for a Strong US dollar

Guest post from John Chinnock

I wanted to examine something that is a very popular conception now, not only on Wall Street, but in the minds of the general population as well. Everyone I talk to or read about thinks that the U.S. dollar is doomed. From people you run into in daily life, to friends in dinner conversations, all the way up to top fund managers, it seems that everyone is on board with the thinking that the U.S. dollar is going to go straight into the abyss.

The arguments for this thesis are sound. We have printed trillions that we likely cannot pay back. If more economically troubling times are ahead, then our government will only print more in an effort to do anything possible to fend off deflation and a collapse in housing prices. Furthermore, if the U.S. prints and cheapens the dollar, this lessens the burden of repaying the trillions in Treasury debt that eventually need to be repaid. These arguments are sound and valid.

The problem is when so many people think the same way in the investing world, things rarely go as planned. What could everyone be missing? Is there a scenario where the dollar will do well? I'm not just talking about a six month rally or a short-term blip. Is it possible that the dollar could enter a long-term bull market here and surprise everyone on the planet?

Before I give my reasons, I want to fully state that all scenarios are possible here. I'm not in the camp that the U.S. dollar is necessarily going to enter a long-term bull market here. I'm just stating that there are forces that could cause this that nobody is considering.

1 - The top tax bracket is in the high 30's in terms of %. Historically, this is very low. In fact, there have been times when it was 90%! If taxes overall move higher, especially on the mega-wealthy, the dollar will strengthen considerably as the U.S. raises more money.

2 - There is a small but growing segment of politicians who want to do the right thing in terms of the deficit. Chris Christie is the best example of an extreme budget deficit fighter, but there are more and more slowly appearing in Congress with every election. This could eventually be a huge shift if it gains traction.

3 - What if the massive bailouts and subsequent money printing represented the absolute peak of government insanity? If the government even very slowly begins to shift to a mindframe of spending responsibly, the dollar will quickly strengthen. Look at it this way, they are already doing everything they can to kill the dollar, yet it is hanging in there. In terms of the pendulum, they are already nearly at a swing peak on one side. However, if they were to shift focus to repaying the debt and balancing the budget, the pendulum could swing a long long way in the other direction. This would be extremely supportive of the dollar and could cause violent moves to the upside.

4 - I have mentioned this before, but I will repeat: what would the dollar collapse vs.? The euro: they have Greece, Ireland, Portugal, Italy, and Spain all barely on life support and needing full funding from Germany and France. The yuan: China is so hyper-inflated and overbuilt that if they float their currency, it could surprise 100% of the world's economists and collapse (perhaps after a brief spike higher). The yen: Japan is in the same situation as us but far deeper in terms of debt to GDP ratios. They also suffer from an aging population and shrinking workforce just as we do, yet again there problem is more severe. The yen faces deep structural problems down the road, as does the euro as well as the yuan. All of this is very dollar supportive.

5 - My last point is on sentiment. True bull markets are born from situations where absolutely nobody believes. As the asset moves higher, everyone remains skeptical, sometimes even more so! Despite all of the dollar bashing, it has slowly moved higher over the last two years. Thus far, it has made higher highs and higher lows, while sentiment and predictions for its future have drastically worsened. I'm not stating that this necessarily means the dollar will enter a bull market, but this is perfect classic bull market behavior. Imagine how far the dollar could swing if the fund managers of the world even begin to think in the other direction and feel that a bull move might be coming.

Murf often refers to me as the dollar bull. I embrace that label, not because I feel that the dollar will necessarily move higher, but rather because I feel there are a number of potential catalysts for this move that nobody is considering.

On a final note, I do basically agree with Murf about gold. However, I don't feel that gold will move higher due to inflation. Gold will move higher due to increased stress in the worldwide banking system that will likely take years more to play out. An environment that is filled with potential debt defaults worldwide is an excellent environment for gold. Of course, an environment that is dealing with debt default worldwide is not in the least bit inflationary in any way, at least not in terms of expansion of lending and credit.

Best of luck to everyone out there,

John Chinnock

Thursday, October 7, 2010

The Boy Who Cried Wolf

In the Boy Who Cried Wolf, a boy yells for help over and over again, until he loses his credibility. Then when he truly needs help, no one listens to his cries.

Well, sometimes I feel like on this blog I may have fallen into the same trap. While I haven't deliberately lied on this blog, the message the stock market is not to be trusted for long term investing due to fraud and a downright horrible economy may have gotten lost over time.

The market bounce from the low in March 2009 was expected, but the duration of how long this has lasted is way beyond what I ever expected. Just because my expected timing is off, doesn't mean the fundamentals are wrong. I have learned quite a bit in the last 4 years, and one key item is not to try to time the market.

I wanted to reiterate this message today. The stock market cannot be trusted. The financial foundation is based upon fraudulent accounting rules enacted as an emergency measure back in 2008. Here it is after supposedly the economy has ended a recession, the fraudulent accounting remains.

Bogus accounting aside, the fundamentals will be reflected eventually. If you must be long the markets, I still like natural resource based stocks. However, at this point many natural resources are getting over-extended.

Good luck to all of you, and stay nimble.

Wednesday, October 6, 2010

Dollar Destruction resumes

The US dollar is continuing to make a beeline down lower. Everyone including me is expecting a US dollar rebound. I am looking for a rebound that fails around 79-81 before resuming it's downturn. Others like John Chinnock believe the dollar will ramp higher over the next year.

Assuming the dollar moves lower in the next few months, the US consumer is going to feel a real bite out of their pocket as energy prices should rise. This is in accordance with my prediction back in fall of 1998. What I believe what we will continue to see is natural resources becoming more expensive and a greater cost of everyone's budget. This will bring Western economics more in line with China an India. A general decline of western lifestyles and increase of China and India.

Natural resources resumed their rise Tuesday. Good luck as the Federal Reserve tries to blow another bubble, the results each time they do this will be worse than the previous.

Good luck

Natural Resources

Aside from precious metals, and food ETFs, another beaten sector is natural gas.
Other ETF's to consider is
FCG, now at 16.71
USO, now at 36.09

Some other alternative energy ETF's
GEX now at 20.73
ICLN now at 17.31
NLR now at 21.16
PBD now at 14.02

Again, seek professional investment advice. These ETF's are other ways to diversify into other resources for the possible US dollar devaluation.

Market, US dollar, a fragile situation

Robert McHugh of mainline investors, as well as Elliot Wave International are calling for a market top close at hand.

Gary of the smart money tracker is calling for a correction, but not a market top. Gold and gold miners according to Gary, are on the verge of a market breakout to the upside.

While I agree with McHugh and Elliot wave the market is nearing a top, I believe they are wrong on the timing. I agree with Gary on this one, but yet disagree with Gary that we will see a parabolic swing with stock market making new highs.

In any event, point is, everyone has an opinion, but no one knows exactly what is going to occur. I think that gold and gold miners are going to explode upward for one simple reason: It is the last bubble that can be easily blown to help keep market indexes stay near current levels. The only question in my mind is, how far can they blow this bubble.

The US dollar is being sacrificed for short term equity gains. This trick will run out of room. When the dollar makes new lows, THEN we'll see who is right, Gary, my friend John, McHugh and Elliot, or maybe none of the above. :)

Monday, October 4, 2010

Guest Post, John Chinnock, US Rates

Guest post from John Chinnock, in what I assume is a response to my Sunday post.


I just wanted to offer a few quick thoughts as a brief update. For a longer explanation of my thoughts on investing in the current environment, please see my old post at (link here). In that post, I suggested short to medium term bonds as an excellent investment right now. To further clarify, I do not think rates are going to go much lower. After all, they are getting awfully close to zero already! I do feel though that rates will remain low for far lower than anyone expects right now. There are times when a meager return on your money really is the best bet, especially when risk is considered. If the market were to collapse 20%+ from here (easily possible), then 2.5% in a 3 year bank CD will seem amazing in comparison!

There is another brief advantage of investing in bank CDs that I should point out. Obviously, any investment with zero risk is always optimal if you want to sleep well at night, especially if it ties up a huge chunk of your money. The FDIC ensures that all bank deposits up to $250K are insured. This not only guarantees your safety, but it also creates distortions in the fixed income marketplace that a savvy investor can take advantage of. For instance, right now, 5 year treasury bonds are paying 1.22%, yet you can search and find 5 year CD's that pay 3% risk-free. Therefore you are getting a return nearly three times higher than what the free market says that you should be getting, and with zero risk at the same time! Deals like this do not occur often in the investing world, yet with bank CDs, this opportunity exists all the time. If rates do rise before your CD expires, consider that you have nearly a 1.8% bonus over the free market rate of return to begin with anyway.

Best of luck to everyone, and once again, we should all appreciate Murf for his hard efforts in keeping this blog running, despite his busy schedule.

US dollar bounce?

Just yesterday, in my weekly summary, I listed US dollar, gold, and rates.
While the trends depicted there will take months if not years to change, there is an interesting chart pattern today.

The USD may have bottomed Friday. I have confidence the dollar will resume and go lower, however, in the near term (1 week, 3 months?) the USD could reverse and gain in appreciation.

A good time to get in on natural resources is if/when the USD hits about 80 in valuation. That level has shown some support and now possibly resistance.

Sunday, October 3, 2010

This Week in Charts

This week in charts, I pulled the graphs way back, some as far back as 1995.
It helps to put context where we are, by where we have been.

First up is the S&P 500, SPX, notice market rallied significantly into 2000, but since then it has whipsawed around. We are not better off today than 10 years ago in terms of US dollars. And we are worse off if we adjust for US Dollar depreciation and "lost" revenue if investments was in US bonds.

Next up is US interest rates for 30 year, 10 year, and 5 year bonds. All have been on a significant decline for the last 15 years, and shows no signs of rallying. From this view, my friend John's logic of buy bonds now is sound. Rates today may be lower tomorrow, so lock in higher rates today. We may see US rates hit near zero someday, but I doubt it. There will be an inflection point, and that should be before rates hit zero.

Now lets take a look at the value of the USD as a currency, and value of gold in terms of USD. Notice gold is rising much faster than USD is falling. Why? I believe it is one of my principal reasons for buying precious metals. India and China are rising wealth nations, and those cultures prize gold in their societies. In a nut shell, Americans will find gold more expensive as they compete with an emerging market of 2.5 billion people in those countries. That is in addition to fiat currency confidence problems.

So where does that leave us in the near term? Steady as she goes for now, natural resources as investments.