Capital markets require efficient marketplace

What is the most critical factor separating the USA economically from the rest of the world?

The USA has healthy amount of natural resources (food, land, minerals, coal, etc), but so do other countries like Russia.

So what historically was the key difference in America becoming an economic powerhouse up until the 1980-2000 time frame when it transitioned?

There is no simple one answer, there are many factors. Some are historical positioning such as End of WW2 with America benefiting with it's manufacturing base. Some is military and political positioning. Some can be assigned to freedom.

But what makes freedom special about capital markets? People sometimes treat freedom as some sort of magic elixir that will make everything better.

For example, you can meet any homeless person on the street in the USA, and I could argue that they are the free-est of all Americans. As individuals they have no debts (that can be collected) and they can truly do what they want (limited to money). But most rational people would NOT classify homeless as an example of true success in life. This isn't about money, but about living standards and taking on responsibilities. Yes, money is a factor, but money is a consequence of acting responsibly and creating a good living environment for yourself and others.

In America, what has been bothering me the most since August 2006 isn't about the financial mess America created. It isn't about deficit spending MORE than the entire US budget in 1998. It's about the "bums in Washington". America provides Freedom (some curtails have snuck in), but freedom is a double edge sword. You can decide your own fate as individuals, companies, states, or as a country.

The people of America have lost a common bond that World War 2 provided the baby boomer generation. The Great Depression combined with World War 2 created a common experience that drove citizens to work for the individual AND common betterment of tomorrow.

Acting responsibly for the common good is no longer a cultural embedded idea. Acting for personal benefit is. I realize that acting for personal benefit has always been a major part of just being alive, but there has been a shift in the American culture.

It is this shift, that is reflected in the bums in Washington that bother me. We have turned into what is easiest for today, at expense of tomorrow. This is also the crux difference between having faith the US dollar will not collapse vs will. If you are of the opinion the US dollar will retain value for the next 30 years+, your are choosing that the system will work the situation out.

The other side is that the US dollar is doomed for failure due to a wide variety of reasons, including debt structure, US positioning, and leadership.

I am between the two. As stated in the post "Answering problems with what you know", people will continue to choose to do repeat behavior that has brought to where we are. Only after the real world takes away the choice to do the wrong thing, will the right thing be done. I agree with Winston Churchill who said "Americans can always be counted on to do the right thing...after they have exhausted all other possibilities."

And this is the source of my pessimism. The combination of Freedom to do the wrong thing, shift in citizen culture, and human nature to do "Answering problems with what you know" will bring America to it's knees.

I highly recommend reading Karl of the Market tickers post/rant titled "On Honesty In Schools, Governments And Enterprises". It highlights how morally corrupt America has become, and highlights that freedom is not a magic elixir. It is a challenge to act responsibly.

Capital markets can succeed when markets operate to make choices freely, with process execution fair to all involved, and the rule of law to enforce the outcome of choices made freely. Anything short of this, is a recipe for failure of markets either by currency or securities.

Technology, Power to the people

I posted how "Technology, is the ultimate destructor of inefficiency" , and on the show "This Week" highlights the role of new social media in bringing down dictatorships. (Twitter, Facebook, etc).

We are living in very interesting times, where democracy is taking shape through technology.

Great video to watch, for this historic period.

Jim Rogers

Nifty Video from Jim Rogers

Japan's economic wall is hit

If you don't know about Japan's financial problems it is well worth reading sources from the net. Basically, Japan entered into a period where it's demographics is aging, resulting in an imbalance in the work force. America is facing the same problem (Baby boomer).

However Japan has financed its reckless financial policies the last 20 years with their retirement savings. Net result? On paper you have trillions of dollars in retirement savings, and on the other side trillions of dollars in government debt. There is not a "net" asset position here as a nation.

Things are finally going to get interesting in Japan, as their pension funds become sellers, rather than buyers, of Japanese debt. Its just a start. My prediction for Japan: The last 20 years will now be looked at as good years compared to the next 20 years.

Oil spiking

Oil facility in Libya owned by Chinese attacked. (click)

Brent Oil has spiked to 120 a barrel. If oil continues to spike (200 barrel anyone?) it is sure to crash the US market like it did in 2008.

India stock market declining over-night.

Canary in the coal mine

The primary question for all investors and US citizens should be the stability of the US dollar and interest rates. For wealth isn't measured in US dollars, it is measured in the capital you possess, and how you can trade that capital to meet your living needs or wants.

Purchasing bonds, CD's, or having cash is just a form of storing wealth. You could easily purchase gold bars, diamonds, or rare collectible baseball cards in hopes that in the future you could use those objects for exchange for items or services you want in the future.

US cash isn't a guarantee of being a great storage of wealth. No resource is. Owning a prime real estate home in Detroit in 1960 was great, and now I doubt you'd get 1/10th the value it had then. Same is possible for Gold, etc. Similarly, US dollars could be worth less relative to other currencies and resources over time. If the US dollar slips lower, say by 50% or more, people's daily living expenses will rise. America imports significant amounts of fuel and items made by foreign countries. From an American perspective, the costs of those good would rise.

Therefore it is key to keep an eye on the value of the US dollar. But against what? Against cost of eggs? Land? Gold? I am one to not use Gold or resources as a direct correlation to USD as a clear indicator of purchasing power lost. While I agree this is worth watching, as previously posted resources could vary in value due to food shortages, or external forces like India and China purchasing habits.

So a good indicator is USD against a basket of other currencies. The US currency index (nybot:DX) is such an indicator. Reflecting back on my post "This Lifetime in charts", we can clearly see the US dollar hit an all-time record low back in 2008 and a higher low in 2009. A higher low is a good thing, it shows possible building support.

The US dollar is once again falling, and it is approaching the "danger zone" of making a lower low. Back in November 2010, in post "Public has huge faith in US dollar", the USD was hitting a critical trend line established back in 2008. The dollar reversed trend and move up.

We are now fast approaching the same critical trend line from 2008. If the US dollar breaks below this trend line, it is a strong indicator that the US dollar is headed to make a new low. If the US dollar breaks the 2008 low, from a chart perspective, the US dollar has no support. There is no historical precedence on how low it can go.

I urge everyone to put some percent in natural resources, and to further keep an eye on the US dollar. For if the 2008 trend line is broken, it is an indicator to the world that the US dollar is running into issues. If it breaks the pre-crash low set in 2008, there could be some serious issues. Combined with food prices rising, oil rising, and metals, it could get very serious.

Below is the most recent USD valuation chart. On the far right of my blog is a link to live US valuation. I'll be sure to announce when USD breaks the 2008 trend line, and freaking going berserk if it breaks below 2008 level, at 70.

A failure of USD in the currency market place, combined with a failure for US federal bonds to keep within a 25 year trend of lower cost for debt, is a clear canary in the coal mine for USD backed savings, such as bonds or cd's. These two events combined will be our dead canary.

From WebSufinMurfs FinancialBlog2

Market Correction, one day wonder or trend?

Just about everything was punished in the market Tuesday, EXCEPT Gold, Silver, and Oil.

Notice the core resources are holding up quite well.

GLD - Gold ETF - up (barely)

SLV - Silver ETF - up

USL/USO - Oil ETF - up

GDX - Gold miners - down less than 1%

GDXJ - small gold miners - Got hit somewhat , down 2.4%

SLW - Silver Wheaton - Down under 0.5%

PAAS - Pan American Silver - up 0.7%

DBO - Food ETF - up 3%

Example of resources slammed.

AVL - Rare earth minerals - did get hurt badly, down 5.6% in one day.

RJA - Food ETF - down 5%

The real story, as since I started this blog, is long term interest rates (TNX/TYX)

Rates did go down, about 2-3%. In bonds for a day, thats pretty big. But it isn't enough. 30 year bond rates must drop 30% lower to get solidly back into the 25 year trend down.

The other real story is US dollar. I may make a post, and ask my friend happy john to comment.

In my opinion, if USD breaks below the low made in the last year, then natural resources is the ONLY place to be. If USD can keep its value and start advancing, fixed income is best.

Time will tell, good luck.

Mideast Unrest spreads, Food prices, and trade balance

Since the relatively peaceful revolution in Egypt and Tunisia, other citizens in middle eastern countries have been inspired to rise up.

Protests are occurring in Bahrain, Morocco, Jordan, Yemen, Syria, Algeria, Iran, Kuwait, and Djibouti.

In Libya there are rumors Col. Muammar el-Qaddafi has fled. It looks almost certain he will be deposed. Many people are dying for their country to change leadership.

In Kingdom of Bahrain, peaceful protesters where fired upon and killed.

Obviously with Egypt successfully overthrowing it's government it has inspired others to follow.

My belief is that the original source of unrest pushing people over the edge is rising natural prices, especially food. As already posted, World Bank President Zoellick Says Surging Food Prices Have Pushed 44 Million People Into Extreme Poverty.

Please keep in mind, millions more are having financial stress, without being pushed into extreme poverty. I keep reading blaming Ben Bernanke at fault for all of this. While I agree that loose monetary standards have an amplification effect on asset prices, I don't agree that the root cause is Mr. Bernanke.

Food supply is tight, and for this reason, prices are rising. However it is impossible to analyze if prices would be 1% lower or 50% lower if it wasn't for all the money being pumped into the system by Mr. Bernanke.

To illustrate the tight food supply, Russia had a rash of wildfires from drought, resulting in Russia BANNING wheat exports. The areas affected by wheat production issues includes Russia, Ukraine, and Kazakhstan, for a total of about 15 million metric tons.

India's Wheat crop is setting a new record, but India already has a ban on exporting wheat.

China has the world's largest Wheat production, but their crop has been devastated by the weather. This is forcing China at a minimum to increase Wheat imports to 3 Million tons.

Of course prices will rise! Therefore I do not support trying to put a direct correlation of US monetary policy with food prices.

For 2010, US exported NET about 34 billion in agriculture. If food prices double on average in 2011, it would increase US NET exports to 70 billion dollars for 2011. How ironic that as food prices rise devastating other countries, the US balance sheet may improve, ever so slightly. And I don't believe those figures include manufactured food products exported (like cereal).

This Week in Charts

The US 30 year treasury bond yields where declining after poking above the 25 year trend line down. Jury is still out if this is a trend change or just an anomaly.

US stock market really has only up to go from a chart perspective. The only word of caution is the advance looks truly unbelievable. Only twice before in the last 100 years has the US market made such stellar gains, 1934 and 1937. And the 30's is not known for being a good time to be invested in the market. Note that Gold miners outperformed all other sectors during the great depression.

To the charts!

From WebSufinMurfs FinancialBlog2

From WebSufinMurfs FinancialBlog2

From WebSufinMurfs FinancialBlog2

Great Depression vs Todays market advance

This week, the stock market achieved over 100% gains from the bottom of the stock market in march 2009, 102 weeks ago. The low was S&P 500 at 666, and this past week the S&P 500 hit 1,344.

The question is, has the market ever achieved such stellar returns in the last 100 years of the US stock market? The answer is yes! Twice before.

The years such dramatic gains you would think would have been the go go 80's, or the Internet boom of 2000. Maybe the end of World War 2 when the European manufacturing was destroyed, and the US enjoyed a manufacturing boom.

Nope, you'd be wrong. The last time the markets returns exceeded 100% in 102 weeks was The Great Depression, in the 1930's.

The years where 1934 and 1937. This factoid is from The Chart Store, from their paid service, so I can't link to the data or charts.

But it makes you think, anything with such stellar gains eventually has a payback. The tremendous gains in the Great Depression did not last, and the market collapsed each time. In 1934 the gain was about 140%, and 1937 about 135%. We are only at 101%, so if history is an indicator, there is some upward advance still possible.

In 1937, the timeline from the bottom to the top, if repeated, means this Friday will be the top. Compared to 1934 there is a few more weeks left.

Will history repeat itself, or is "this time different"?

Modified blog layout

Did some tinkering today, modified the blog layout to be wider.
I run at 1920x1080, the blog was optimized for 1280 width.
I increased the width to 1400. The main text is width of 1100, so the article format should still look fine on 1280 monitors. Just the right hand side will get cut off.

Enjoy.

Crisis of Capitalism

This first video is very flawed, but it is entertaining and helps get you thinking.

A Marxist tries to critique how we have arrived to the current crisis.

Second video is a great critique of this video.

Third video is critique of the critique.

I recommend watching all three to try to form your own view.

This series of videos highlights why I choose to make arguments through a blog, with links to previous arguments or facts to compose a view based upon a series of smaller arguments.

A great example of his is my recent article "Why Natural Resource assets is better investment than US Bonds".

Then a critique of the critique

India and China love gold and Silver

Well, its good to see media finally giving credit where credit is due. Instead of doom and gloom of the dollar moving to worthless as the reason for gold and silver's rise, article links China and India consumption as voracious.

Most interesting is this quote:

"Chinese government is encouraging their citizens to buy physical gold and silver bullion having banned gold ownership from 1950 to 2003"

Woooh! if thats true, I can really see gold launching into the statusphere. As China's economic instability continues due to some pretty horrific monetary policies, I can see people pouring into gold as a safe harbor.

Remember, there are over 1.2 billion Chinese, if even 20% purchase gold aggressively, thats 240 million people. America has total of 300 million people. Then India on top of that is purchasing.

I can see gold going to ridiculous levels, just may not be in a straight line.

When this craziness ends, likely years from now, it isn't going to be pretty. At some point gold will utterly collapse the day those chinese want to sell gold. I don't see that in the next 7 years or so, since most people buy gold like a ponzi scheme and hold.

Good luck.

Time to play parabolic blowoff chicken

I have dumped just about every short I have, and started re-loading the boat on resources.

It is looking like we may enter into a parabolic blow-off in the markets. The problem with parabolic blowoffs is you can make great money on the way up, but you must be ready to exit to preserve gains.

Usual suspects for me, GLD, GDX, GDXJ, AVL, RJA, OIH, DBA, LYSCF, SLV, SLW, SIL, URPTF, and a bunch of gold miners.

Gold miners, NAK, ANO, AUY, GSS, HMY, IAG, IVN, LUMF, NXG, RGLD,

As my friend John has said, resources can get cut down hard, like everything in life, you must take risk for reward.

But congress is bickering over cutting 100 billion out of a 3.7 trillion dollar budget. So I see no stomach for the new congress to make any meaningful changes in the budget. This will be good for gold, and bad for the US dollar. I would have had some respect for the new congress if they atleast tried for 10% cut, 370 billion. But bickering over 100 billion is useless. They may as well not cut the budget at all.

The politicians have spoken, we must have a crisis for change to occur. And from my point of view, the crisis will not be in gold until there is a crisis in the US dollar. That is the order we are setup for.

When USD hits an inflection crisis point, I may consider unwinding, for the politicians may act responsibly under pressure.

Blogger Roundup

Some excellent commentary and analysis out, I picked some highlights.

Hussman Funds

Rich Valuations and Poor Market Returns - Last week, the S&P 500 Index ascended to a Shiller P/E in excess of 24 (this "cyclically-adjusted P/E" or CAPE represents the ratio of the S&P 500 to 10-year average earnings, adjusted for inflation). Prior to the mid-1990's market bubble, a multiple in excess of 24 for the CAPE was briefly seen only once, between August and early-October 1929. Of course, we observed richer multiples at the heights of the late-1990's bubble, when investors got ahead of themselves in response to the introduction of transformative technologies such as the internet.

Xtrends

The most important days since March 6, 2009 - My spin - check this post out, if anything for the chart dating back to the last great depression. Interesting.

Zero Hedge

World Bank President Zoellick Says Surging Food Prices Have Pushed 44 Million People Into Extreme Poverty - My spin - yep, and it will get worse, and more countries will fall. Next topic.

Acting Man

A Blow Against Monetary Rectitude - Germany ECB president, a staunch believer central banks role should be to protect the value of money, has resigned. A good rant about the implications as yet another force to guard fiat currencies is gone.

Market Ticker

How Badly Are We Screwed? Very. - Summary in charts of debt problems and economy.

Mish

Retail Sales Rise 7th Straight Month, Now Above Pre-Recession Peak; Making Sense of the Numbers; Housing and Auto Perspective - Bottom line, adjusted for inflation, sales below high.

Smart Money Tracker

The Silver Bull - Good chart analysis of Silver by Gary

Marc Faber - Gold correction to last longer than people expect

Marc Faber, echoing US relative strength in 2011, and emerging markets correcting due to natural resource food prices rising, such as food.

Marc is bullish on gold over long haul, but bearish on near term.

This Week in Charts

Taking a slightly different spin on charts today. Pretty much everyone agrees that the US market will do relatively well this year, considering the positions of others in the world.

Even I am slightly optimistic. However, I figured lets try to put a slightly pessimistic eye on charts.

Lets extrapolate what the markets have been doing, and where this is going.

Quite clearly, this can't continue without severe issues occurring.

I have no clue what, if anything, will spark a trend change down. But these charts look too good to be real. So either believe the extrapolations I present, or take some cover as we need to get some air let out of the markets.

To the charts!

From WebSufinMurfs FinancialBlog2

From WebSufinMurfs FinancialBlog2

From WebSufinMurfs FinancialBlog2

From WebSufinMurfs FinancialBlog2

Bill OReilly interviews Obama

I am not a huge Obama fan, mainly because I don't see much change from Bush in his policies.

I am immensely unhappy with the federal budget and of not being proactive to ensure the law is strictly enforced with upper end financial companies.

But I have to say, Bill O'Reilly is an unprofessional interviewer with Obama. After this video I have more respect for Obama and I even more disapproval of O'Reilly. I am ashamed to admit I used to watch O'Reilly for a short period (month or two) years ago. What a prick.

Worst part is O'Reilly condescending surprise that Obama knows football at the end. Can't even be positive or supportive of Obama on such a stupid topic.

If O'Reilly even once for the rest of his life criticizes others for not being patriotic, I suggest he go back and watch this video and point his opinionated eye at himself.

More Jim Chanos and China

Out of all the experts talking about world finance, I am finding Jim Chanos one of the exceptional investors of our day. To date, I have agreed with everything Mr. Chanos has said. I find his disposition to be rather impassion-ate about the specific financial events, but passionate about uncovering the reality he sees.

I bring you two Chanos videos, both well worth the watch. Believe it or not, he sees good things for the USA in 2011 relative to the rest of the world. I agree. But that doesn't mean the markets roar to all time highs, it just means that US on a whole fares better than others. And as always, Chanos holds a negative view of China in the nearer term.

Further, Chanos gives great reasons why people should not heavily invest in natural resources. So well worth a listen. Disturbs me, but I agree with a sharp pullback is likely before the march forward in resources resumes in my lifetime.

Egyptian Government changing, next up possibly Algeria

Congrats on Egyptian people for being heard, without requiring starting a violent revolution. President Mubarak ceded power to the Military. But don't worry about Mubarak, it looks like he has taken steps to ensure his vast wealth as "president" has been transfered to friendly countries. (Gold bars among the assets.)

If prices of food continues to rise, which it looks certain to do so, I would expect more countries barely keeping control to run into trouble. The weather in USA and around the world has severely injured crops. I expect ridiculous food price increases this year at times. Already being reported is Tomatoes in America going from about 8 bucks for a package of 4x4 tomatoes to 24 bucks. There are many other crops being affected, wheat is still a question of how bad the damage is done.

You may hear calls that this is proof that the fed is causing inflation to occur around the world. There is no doubt in my mind that loose money must find a home, and investing in natural resources is a good play. So I am convinced that the extreme price levels will be caused by Ben Bernanke and the Federal Reserve monetary policy. But for me I am not convinced yet that we are experiencing food price inflation. The injured crops combined with the China and India resource appetite is more to blame.

The next country up for trouble is Algeria. (Alergia next?)I may have been a bit early in January 2009 calling for countries to collapse, but it looks like 2011 is off to bang. All of this is actually good for the US dollar, as it should help drive fear into US bonds. However, so far, the US dollar isn't getting the boost it should. So we'll have to see how this plays out.

When violence is required to change politics

As everyone should already know, Egypt is undergoing a peaceful civil revolt against President (dictator) Hosni Mubarak. I say dictator as he has been in office 30 years, and by no means has been truly freely elected over the entire duration.

I have talked before this revolt to USA Egyptian citizens about their countries politics. The spin I get is the Egyptian government exists primarily through USA political and financial backing. I haven't run into an Egyptian yet that has said they are happy with their homelands government. So it was no surprise to me that civil unrest erupted threating Mubarak's government.

I was rather startled how quickly this unrest turned into the government's very existence is called into question. However by enlarge the protests by the people to basically over-throw their government is relatively peaceful. There has been looting, violence, and clashes with the police. But compared to other government over-throws you could say it's peaceful.

I was expecting the announcement that came about 1pm Thursday that Mubarak was stepping down. Later the same day Mubarak stated that he would not step down. The military has been trying to act neutral, not clashing with protesters unless they broke civil law. I am no expert of the situation in Egypt, but from my standpoint the momentum is too great to ignore, Mubarak must go.

This is a clear case where if change cannot be attained through peaceful means, the public will be forced to violently overthrow their government. And frankly, I think that it is getting close, if not already a justifiable next step. Unfortunately, if Egypt is over-thrown through violence, rather than a negotiated transition, I expect Egypt to become a Muslim state.

Mubarak should have negotiated a transition, ensuring a truly democratic state evolved from his reign. Since he refuses to step aside, the transition will yield an unknown next government. The people will get change, but it remains to be seen if the change is truly better.

A secondary question should be asked, why now? If he has ruled for 30 years, why is this happening now? Again, I am no Egyptian expert. But from my standpoint there are many catalysts, but to me it comes down to....money.

Food prices are rising, and governments that where barely maintaining order lose control of that order as people become angrier of their living conditions. Further, Egypt has historically augmented it's fiscal positioning through Oil sales, among other things. And due to peak oil (in my opinion), Egypt is about to become an oil importer rather than exporter.

I see quite possibly similar civil unrest occurring for countries experiencing similar energy import shifts. Becoming an oil importer rather than exporter is a major financial stress that weaker governments may not transition well.

It boils down to natural resources will grow in cost due to India and China's consumption rate, and the transition will continue to be a colorful one. (Nice picture here of global oil consumption) I hope the Egyptian people ensure a truly democratic government follows President Hosni Mubarak's rule. For if it becomes a Muslim state, the power shift may continue to the rest of the area including Saudi Arabia. And that will bring some extreme change the US lifestyle.

IKEA accused of avoiding taxes

First, all solvent corporations attempt to avoid taxes. What they do to avoid taxes is debatable what is legal. One of the reasons why a flat tax is desperately needed.

I ran across a great blog post about working at IKEA USA starting in 1989, doing their financials. Its a great read about his life experience there.....and some life lessons.

Doing the right thing probably does not yield a reward.

Market Exhaustion

The market is reaching exhaustion levels, this combined with my (and I am sure the fed's) concern over long term interest rates, bring doubt to market advance.

About 40 minutes ago the DOW hit 12,251. Let's see by Friday where we are. I am thinking we may have seen a near term market top, until the Fed triples down with QE 3.

But then again, I wouldn't be surprised if we hit DOW 12,300 by 4pm today! :)

Different Podcast Supplier

I was having problems with Odiogo for podcast creation.

I switched to ispeech.org. The voice is much worse, but the functionality seems better so far.

I may switch back, I'll see how this works.

The new podcast link is here.

Corporate earnings analysis for the next decade

I highly recommend this article from Mish's blog showing corporate earnings from 1929 to current. It highlights the "generational" trend of corporate earnings, placing context on the macro driving forces.

I'd summarize it here, but I'd do it injustice. Head on over by clicking to read "Negative Annualized Stock Market Returns for the Next 10 Years or Longer? It's Far More Likely Than You Think"

Small Proof that Technology will break the US financial system

In my blog post in October titled, "Technology, the ultimate destructor of inefficiency", I detailed my view on how the old guard of humans controlling the economy using processes created 80 years ago would lose to technology. Good old Ben Bernanke and government central control of financial markets cannot compete with billion dollar investment firms creating computer systems to suck the system dry of money. That in effect, Technology will win, and the system will lose.

Quote taken from Zero hedge below, Please click through to get the full article and listen to the interview. It is refreshing to see the internet get out insider view of what is a complex and high stakes game being played.

Joe Saluzzi, co-founder of Themis Trading LLC and outspoken exchange expert, is concerned with how high-frequency trading has brought the capital markets into uncharted - and dangerous - territory.

"Things have changed," he cautions. With 50-70% of all trades being conducted by algorithms at micro-second time intervals, real human traders are increasingly challenged to understand how our markets actually work. "No longer do the technical patterns - that have lasted for years and years, and are written about all over - work anymore."

How the average trader is destined to lose in today's market, while the big banks & HFT firms who can afford to win the arms race are making essentially-guaranteed profits.

Folks we are not victims to the system, unless we allow it. Only if we demand to change processes will this be stopped. And since people are reactionary I don't see that occurring. So I see a crisis far worse than 2008 in our future, as the arms race escalates until the system breaks.

This Week in Chart

There is only ONE chart worth watching right now, and that is the US 30 year treasury note interest rates. As already covered previously, the US 30 year treasury rate has been on a decline for over 25 years. It looks like this this past week this may have changed. A poke above the trend may be forgivable, but if we enter into next week with rates rising, then the cost of Debt to the US has shifted. We will be officially on an upswing rather than a downswing for the last 25 years.

We are on the cusp of declaring the US bond bull to be injured, if not dead.

This has enormous implications for the US. However, I can easily see the market correction beginning in earnest, countering this trend. The next 4 weeks I do not expect to be fun for anyone in the markets.

The stakes are high, for if the rates continue to rise, it will be noticed by bond traders from around the world

Please read my previous post, look at the current chart, and take this into consideration with investing positions. We may be on the verge of the gold and resource bull going wild, soaring in the weeks and months to come. Or possibly a correction in an effort to contain rates. Basically its high stakes for the next 4 weeks or so as we get an answer for what it will be.

Good luck!

From WebSufinMurfs FinancialBlog2

Inflation, HA! People misunderstanding the forces at work

Everywhere I read, bloggers are saying that Ben Bernanke is creating inflation through massive US dollar printing. While I completely agree Ben Bernanke is creating a situation that may eventually bring the US to it's fiscal knees, in conjunction with congress, I am not, and have not, blamed the primary cause of rising resources on good old Ben.

As I stated back in 2008, and now we get to see it play out in real time, that China and India with increasing wealth is going to drive resources through the roof! What Mr. Bernanke is doing is ensuring fixed income rates are depressed, and ensuring that your income cannot keep up with rising food, energy, and natural resource costs.

Today we have a sneak peak on what is in store. China has announced it's intention to import 9 million tons of corn in 2011-2012. Why is this a problem? The US department of agriculture estimated 1 Million tons!.

My god, that is a striking mis-estimate! No wonder Corn, Rice, Wheat, and other foods are going through the roof. Many gold bugs point to rising food costs as proof Mr. Bernanke is causing food prices to rise. I say hogwash. The China and India importing machines is starting to rev up and they will soak every last ounce of resources from the world as they try to attain a better living standard.

Combine this with pressure on fuel costs as China also soaks up every last barrel of oil, we have a real firestorm a brewing.

Mr. Bernanke is helping ensure Americans get a full, hard, punch in the face by ensuring they cannot save in fixed income to keep up with the rising costs ahead. This is exactly why I am not in favor of 100% in fixed income. For rising resources is not in control of the Federal Reserve Bank. Sure, we can have another market collapse to help cool off growth.

But east's hunger has awaken, and may only take naps, before it starts to eat again.

Mr. Bernanke has saved insolvent banks from declaring bankruptcies, and actively pursued suppressing interest rates, to ensure those who do not have enough savings to invest in natural resources, cannot keep up with the rising costs ahead.

What shows me that Ben is destroying the USD and causing rising resources? Why escalating interest rates breaking out of the 30 year bond market bull trend, or USD valuation falling compared to other currencies. Anything else is smoke and mirrors, keep an eye on China and India.

How Ireland can regain control of its economy

UPDATE:

Added Vanity Fair article on Ireland, how Ireland arrived at fiscal collapse.

Fantastic on the point video on how Ireland can regain control of it's debt.

If Ireland doesn't follow bill Still's advice, the citizens will be debt slaves.

Linking Bernanke to Food Riots

America won't care until we see same percentage price hikes in consumer goods.

Blog Article Roundup

Some links worth looking at

Bernanke Warns of "Rapid and Painful Response to a Looming Fiscal Crisis" - Make no mistake, the financial debacle the US and the world faces was magnified 10 times by loose monetary policy of the US Federal Reserve Bank combined with legislation changes and deregulation. I am disgusted that Mr. Bernanke is already trying to position to pass the pending issue as congress, with no responsibility.

New York Mayor Seeks Pension Overhaul; New Jersey Governor Tells Unions "Sue Me" Over Pension Cuts

China's Borg Assimilation Strategy Part II: the "Honeytrap" the "Lamprey" and the "Mushroom Factory"; Seduced by China

Governor Cuomo Declares New York "Functionally Bankrupt", Seeks Spending Cuts; California Governor Jerry Brown Cites Egypt, Demand Tax Hikes

Fed Excess Reserve Cumulative Deficiency Hits Record - Some pretty scary graphs here, but the Federal reserve could buy 2 trillion, 20 trillion, 1,000 trillion and the US dollar can't be broken.....or maybe not? ;)

Inflation and Popular strife - nice at-a-glance view of rising costs, from WSJ

Article

JPMorgan risk officer warned on Madoff as possibly running ponzi scheme - not good news for JPMorgan. I wonder why they ignored the warnings.....maybe it has to do with executive bonuses with no future ties to future earnings.....nah....just an oversight.

Food prices rise record 3.4 percent in January

Whether it is the USA (and western countries) massive currency printing campaign or my theory of world population wage rising will drive resources to the moon, we are seeing effects now.

According to the Food and Agriculture Organization (FAO), world food prices rose a record 3.4% in January. At this break neck speed, we will see much civil unrest.

For graphs and more information, check out Reuters and blog Zero Hedge post.

We need deflation, and fast, to keep the net purchasing power intact for 2011. For example, if prices rise 12% in 2011, then deflation hits, we'll need quite a bit of price dropping to ensure fixed income can keep up.

100 * 12% = 112.

112 * -10.7% = 100

So to keep up with inflation, need to keep under a 4% difference.

I actually have no clue how this plays out, hence my call to hedge resources with safer investments.

Best Strategy for Fixed Income Savings

In response to my post this past Saturday titled "Why Natural Resource assets is better investment than US Bonds", my friend John Chinnock has emailed me a response. In the email discussion and Instant messaging, John clarified something I was not fully understanding in his strategy. The key to his approach is to purchase highest yield bank CD's with reasonable penalties when the CD is broken. The Bank CD's must be 100% backed by the US government. John Original post is located here on this topic.

In combining my view of 25% resource based investments, with 50% (or more) in John's approach, which I agree is the best strategy for fixed income considering all risks. The remaining 25% is a discretionary investment, perhaps all CD's, more resources or other investments. However I am still in disagreement with John of 100% in CD's. I'll reserve a tit-for-tat post later. For now, here is John's response. Thanks to John for re-hashing his point on CD's.

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I wanted to take the time to write an alternative viewpoint to Murf's post on resource investing. Most of what I think has already been covered in my other guest posts on Murf's site, however, I will try to recap and elaborate. Again, I hope readers appreciate Murf always taking the time to work on his blog, as he really is a very busy guy. His writings here have helped friends and family members preserve their life savings in tricky investing times.

Murf and I basically do agree on the big picture. In the long run, commodities will likely go much higher. His reasoning is clear. Demand for better food and resources will multiply exponentially as more and more of the world's population rises above the poverty level. In time, largely due to the internet and better worldwide communication, the poorest countries will slowly start to accumulate money, and in turn, they will want better food and better resources. An example of this has already been occurring in India, where so many U.S. companies are turning to for job outsourcing. This is just the first step though, as after India, there will be cheap labor coming from many other countries, likely starting in southeast Asia, and then spreading to Africa. Note that this powerful phenomenon known as global wage arbitrage will also work to keep American salaries down for many years. A company has very little reason to hire someone here for a $50K per year salary, when the same job can be outsourced for $5K per year or less. This global change will likely persist for several decades at the very minimum, and will be an extremely powerful deflationary force, especially in the U.S.

The question I ask Murf is, will resource investing strongly outperform FDIC guaranteed CD's over the next 5 years? Readers can access my previous article on why CD's are far better than government bonds. There is something to be said for 4% interest coming in every year, absolutely guaranteed. While there is a chance of loss of purchasing power vs. inflation, there is no chance of loss of principal invested in absolute terms. The same cannot be said at all for resource investing. While unlikely, you could invest in oil, gold, and food, and watch all three be cut in half over the next few years. If you lose half of your life savings, the least of your worries will be maintaining purchasing power vs. inflation! The secret to growing and maintaining wealth is avoiding large blowups. Catastrophic losses are nearly impossible to recover from in investing, especially without then taking further enormous risk in an attempt to recover. And even if resources do outperform CDs, 3-4% consistently every year does add up nicely, especially with dividend reinvestment. Often the high-flying investments strongly outperform CD's for a while, but after one vicious downturn, one would have been better in the slow and steady investment. This also doesn't factor in the ability to have total peace of mind. If the Fed ever decides to end its money printing scheme in recognition of its failure, commodity prices could fall 20% or more in a matter of days. Imagine suffering through that with your life savings invested in resources! These worries are non-existent with CDs.

Another strong argument in favor of CDs relies on buying CDs with small penalties for early withdrawal. If Murf's inflationary scenario does play out, interest rates will spike, or at least slowly trend higher. Unlike with government bonds, with CDs, if rates move far higher, you can simply break your CD, pay the small penalty, and reinvest at a higher rate. Rarely in the investing world do you get a chance at a no-lose investment like this, with a relatively small price to pay to hit the "undo" button! So even in Murf's best case scenario where his vision is completely accurate, it is far from certain that resource investing would strongly outperform CDs anyway when reinvestment at higher rates is an option. And if the CD's slightly underperform, again, the peace of mind factor probably makes CD's the better choice.

Another reason to prefer CD's over resource investing is something I've learned the hard way. It is better to be on the side of the government than against it. Despite Ben Bernanke's frantic money printing, the U.S. isn't about to inflate food commodities to the point that the population starves. They aren't about to inflate oil to the point that nobody can commute to work. They are pushing the money printing envelope now in an attempt to restart the economy, but even they know that there are limits. If the Fed ever ends its money printing in a recognition of its failure, something that likely will eventually happen one day, commodity prices will get completely destroyed overnight. Furthermore, and this also plays into my CD strategy, the number one thing that would wreck the housing recovery is a spike in interest rates. The government will keep interest rates low at all costs, even if it means tanking the stock market in the process to force a flight into the safety of U.S. Treasuries. Remember, the government wants both cheap resources and low interest rates. If you buy CD's and avoid resources, you are on the same side as the wishes of our government. If you buy resources and bet on much higher interest rates, you are betting against the goals of our government. The government may not always win its battles, but believe me when I say that being on their side is a far easier path to take in investing!

Lastly, I have long thought that the U.S. will likely follow the path of Japan. Japan has been experiencing deflation for twenty years now, with low interest rates the entire time. Again, I don't believe that soaring interest rates and hyperinflation are right around the corner by any stretch, at least not for the U.S.. I believe that the U.S. already had its inflationary period. That period was from 1982 until 2007. Over that time, look at the price changes of the stock market and of housing, as well other things such as a college education. American has already had its time of rampant inflation, and in my belief, is now going to enter a long period of deflation, or at least a sideways movement in prices. A 4% risk-free return in a deflationary or stagnant environment is a good deal.

This turned out to be longer than I had planned, but I hope people find it helpful. In investing, slow and steady guaranteed returns with no chance of losses very often win the race. In the times when they don't outperform, they also rarely lose the race by a large margin.

Best of luck to everyone, and thanks again to Murf for his efforts here,

John Chinnock

Law Process Abuse

Below is an example of how big business through lobbying can get what seems on the surface, something that should not be allowed, to get exceptions.

Imagine the type of loopholes financial companies have. Those loopholes aren't as easily discoverable as 32 million gallons of diesel injected into the ground.

In any event, this may have somewhat to do with investing, at least in the companies involved. My main reason to post is to simply state the following.

1) All entities (people, companies, cities, states, countries, etc) will always try to do what benefits them.

2) The LAW is the ultimate loophole, as companies who implement fraudulent or reckless actions, are basically shielded from lawsuit.

3) Since lawmakers are in for only 2 to 8 years, payback of being voted out of office is not sufficient punishment. The public loses and the companies and politicians get all the financial benefit.

I am an optimist, there is a fix, there always is. The public needs to learn to read large, cryptic laws meant to hide wording and uncover the effects. I don't see this happening. Therefore the law process needs overhaul, with strict structure and concise wording required on laws. We need to take lead from Wikipedia, or other open documentation sites to gain public scrutiny with wording.

The darkness must be lifted, so in the light of the public eye, such hidden changes to the law won't stand. Until we demand process change, expect much more of the same.

Below article is snippets from NY Times, click to read full article.

Congress exempted hydraulic fracturing from EPA regulation under the Safe Drinking Water Act in the energy bill of 2005.

Critics now refer to this as the "Halliburton Loophole." Halliburton is a major provider of fracturing services and was the chief company lobbying for the exemption at the time.

Bill drafters forged a compromise on the use of diesel. Fracturing would still be regulated if drillers mixed diesel into the solution. A 2004 EPA study had recommended against further study of the dangers of fracturing in underground sources of drinking water but said that using diesel was worrisome.

The three leading providers of fracturing services had already signed a "memorandum of agreement," or MOA, with EPA not to use diesel. Halliburton, BJ Services and Schlumberger then accounted for 95 percent of the "frack jobs" in the country.

But the agreement with service providers covered only a narrow set of circumstances -- drilling into underground sources of drinking water to get methane from coal beds. It also lacked any enforcement provisions.

So a driller could legally inject diesel for most types of fracturing. The driller just needed to get an "underground injection control" permit from EPA or state regulators.

....

"Drilling companies have won exemption from just about every piece of federal environmental law except the requirement to get permits if they use diesel in their fracking fluid," said Dusty Horwitt of the Environmental Working Group. "This report shows they haven't even complied with this limited provision. How can communities trust these companies to drill responsibly?"

Simple answer, don't act surprised that any entity, left unchecked, will maximize their interests at expense of others. This country needs less victims and more participants in the process.