All Clear?

Friday AM update: decided to sit on my hands, dont sell what I got, dont buy more. I want to read and look at charts indepth before buying.
This is a crazy world, I posted much fear in last few posts, and here I am bullish again.
Obviously, I could post in couple of days running for the hills.

One thing I think is that this administration will NOT allow another market crash like Bush had.
So on that one gut alone, it pushes me towards Gary and not my friend John.

Gary posted here about oil bottoming, and stocks maybe in a 'runaway move'.  I highly recommend you click there and pay the trial 10 bucks for his newsletter.

Another aspect is my lack of faith I have in the USD valuation.  It ran up for a year, and now I believe we are on the downswing in the year ahead.
This should help increase valuations of gold, oil, etc.  So between Gary, the USD, and my faith in corruption, I am going back into miners. ETF GDX & GDXJ  So much for me selling on strength.

I will check the futures in the AM to confirm this intent.

Market Cycles

My friend John, a professional securities trader, has recently become bearish enough to put a toe into shorting the market, for near term.  He views the market movements after QE1, QE2, different than current after QE3.  The market movement difference now has encouraged him to take a bearish stance on the market.

If you read the news, there is plenty of bearish news to back up this view.  Fedex shipping is down, which can be compared to GDP forecasting, California sales tax revenue declined 20% YOY in August,  IMF chief warns of US financial issues in short, medium, and long term, Eurozone is seeing steepest contraction since 2009, Japan exports contract 3rd month in a row and China PMI contracts, Toronto home sales decline 64 percent (due to law change).
Pile on the Euro news with Greece, France, and Spain seeing Neo-Nazi fractions rising threatening those countries status quo.

Now lets look at the opposite view, there is plenty to find, but I am quoting the top two from my perspective. The Federal Reserve bank believes QE3 will help the US economy, as QE1 and QE2 did in the marketplace.

My favorite market watcher Gary of Smart Money tracker is calling for a "near term" bottom with market reversal.  Gary isn't the sort to make super long term predictions like the year ahead, he watches cycles to see next move.

So what is next?  A market fall of significance is always in the cards, especially if you look at history now or in the Great Depression.  (currency wars occurred back then too)  I am mixed, while I don't think in the year ahead we will see 30% market gains, it is possible the market finds a dead range of +10% and -10%.  My inner voice tells me the market is very weak and going to implode, but then again, I have heard that voice a few times in the last few years.

A conservative stance is probably in order, and on any strength, I may continue to lighten to be nimble.

Ronald Reagan Director of OM and Budget

David Stockman was Ronald Reagan's Director of Office Management and Budget, and was recently interviewed on effect of the Federal Reserve bank.  I completely agree centralized force trying to alter capitalistic cycles.  The Fed can distort the capital markets, but it cannot fix by meddling with loose monetary standards.

If the fed exists at all, it should intervene ONLY in a 2008 type event.  But the irony is 2008 event wouldn't have happened if the Fed didn't blow that credit bubble in the first place.  Sorta like a pyro who's dayjob is fireman.   Justifying one's job by putting out your own fires.

I don't dislike the fed because of bankers, or top 1%.  I dislike the fed because a small group of people in power cannot contain capitalistic forces.  It's like trying to control evolution, something bigger than human kind.   The central authorities will be broken by technology, as I discussed before in post "Technology, the Ultimate destructor of inefficiencies"

USD fell quickly, time for a break?

The USD broke DOWN from the uptrend started back in August 2011.  After a year of USD gains, time for some down pressure.  Recently USD fell quite a bit in a reasonably short period.  I expect a couple of weeks of sideways before resuming down.
If this happens, gold, oil, etc may lose some gains before resuming the uptrend.
Heck its possible USD gains strength and resume up, but it seem unlikely.

So hang tight, some in, take some profits, and wait.
Gary of smart money tracker posts cycles, etc, but I simply like the chart below to tell a story.

Marc Faber on US Economics

Mark Faber is one of the best people to listen to on economics.  He is direct and a very serious investor.  He has some not so kind words for the US economic outlook, and it is well worth a watch.

In-depth interview.

Karl Denninger speaks at Republican Liberty Caucus

Karl is one of the few verbose and articulate outspoken bloggers on various finance, political, and social issues. His blog the Market Ticker is a must read. Watch and decide for yourself on Karl. >

Gold, Silver, and Oil, is the sky the limit?

There are huge forces in the global economy at work increasingly intense since 2008.

First we have the demographics of the baby boomers.  The Baby Boomers have basically dictated my entire job outlook and financial health.  As they go quietly into retirement, the shift will put strains breaking so many ponzi-like financial models such as Social Security, Pension funds, Medicare, etc.  And its not just USA, its Europe too.

Couple that with internet and computer efficiency ripping the face off of everything.  Anything that can be outsourced, is.  Anything that can be automated is being automated.  Never in history of mankind can so few people accomplish so much with robots, computer networks, and technological innovation.  Net effect is less  people employed to do same work. (Think checkout lines, toll booths, phone operators, etc, list is endless).

There is no question the USA lead a credit bubble of epic levels that popped in 2008.  But the US has not reformed anything, and instead is re-inflating the same old bubbles.   This may have been tempered by Europe and China, but recently, it seems they are changing too.

Europe had a model that required fiscal discipline, which by now should be well recognized to have been a little misguided.  The ECB is on track for monetizing debt USA style.  As this becomes reality, a MAJOR deflationary force will cease, or at minimum slow down.  For if countries don't implode like dominoes in Europe, then deflationary forces are reduced.

China was on track for reforming from export nation to consumer nation.  And they may still be.  However, the shift is proving painful, so painful that their next leader to lead the next revolution is MIA.  Mish has great summary of the situation.  If it turns out China is going to go back to export nation full steam ahead and not see through reform to consumer nation, yet another global force is shifting back.

Ben Bernanke of the US Federal Reserve will be on track for owning large part of the US Mortgage market, upwards of half in a few years with latest announcement.

Couple the above forces to reduce deflation, couple that with political tension escalating.
China fighting over Japan for territorial issues, US embassy attacked in Egypt, I see this possibly escalating as tensions rise economically.

I see this all good for precious metals and oil.  Political tension, deflationary reduction on a "monetary" level, counter to employment deflationary forces which still persist.  Jeffrey Lacker of the Federal Reserve sees inflation as a likely outcome.

The world is entering into a global recession, but with intense efforts from US, Europe, China, and elsewhere this next recession may be short, followed by intense commodity price upsurge.

A global economic cascade like 2008 could derail this view, but barring a deflationary event, I see resources are at a good entry point.  STAY AWAY from industrial metals, as china has been primary driver, and has huge over-stocks on supplies.

GLD, SLV, GDX, GDXJ, OIH, GCC, and DBA are decent ETF's to look at, however this week we should hopefully see a pullback.

With the USD having plenty of room to fall further, all of this makes for interesting observation.

Miner positions

Big risk, big reward, etc.
So holding everything into Thursday was the right thing to do.
I have started to re-add positions, to the ones I kept.
Always keeping an open eye for weakness.

Federal Reserve Announces

I am not impressed, markets may rise day, week, two weeks, but then the slide will resume.
But who knows, I have been wrong a few times :)


Release Date: September 13, 2012 

For immediate release 
Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment appears to have slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level. Inflation has been subdued, although the prices of some key commodities have increased recently. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and preferred to omit the description of the time period over which exceptionally low levels for the federal funds rate are likely to be warranted.

China Financial Ponzi Schemes

Mish over at Global Economic Analysis reports on China's shadow banking collapse.
This was easy to see by anyone paying attention years ago as China ramped up mal-investment on a scale never seen before.  I have reports some of it, click here for past items.

Recommend reading Mish's article titled "China's Shadow Banking System Collapses Exposing Numerous Ponzi Schemes; Implosion Reaches Critical Mass" and all the sub-articles.

Quote from Bloomberg Article that I found interesting, give a snapshot of the deflationary forces they face:


Only 3 percent of those companies are able to get bank loans, according to Citic Securities Co. (6030), the nation’s biggest publicly traded brokerage, with underground lending by family, friends and acquaintances largely funding the rest.
As growth from low-cost labor and productivity gains from adapting technologies developed abroad lose steam, China’s future expansion must rely more on an efficient distribution of capital, as well as on increased innovation and the development of service industries, the World Bank wrote in “China 2030,” a report published in February.
Tamping down underground lending as the economy cools poses risks, said Fred Hu, a Beijing-based economist and former greater China chairman at Goldman Sachs Group Inc.
“Shadow banking is much vilified, but without it the Chinese economy would have had a hard landing long ago,” Hu said. “The issue here is how to legitimize the sector and make it more transparent to reduce some of the potential downside risks, but not to shut it down. If the government were to try, that would do terrible damage to the economy.”

A recent video of Jim Chanos, my favorite investor deflationist.

Word of Caution

If the Federal Reserve Bank disappoints tomorrow, it could be a blood bath for a few weeks.
Decide for yourself, take profits on 50-90% of holdings or let it ride for longer term.
I lightened on miner/metal positions.
Good luck.

Next Major event

Next Major event is this Wednesday-Thursday, as the Federal Reserve bank announces their next action.
Most of the market pundits expect they announce a new Quantitative Easing program. (loose money).
Some believe the Fed started the QE weeks ago, explaining the market rally.

One thing is for sure, the market expects some meat on this meeting.  If there is ZERO easing, the market may react badly.  I expect there will be some sort of QE indication or program started.

Federal Reserve Bank meeting times

Politics

Easy to access videos about candidates.
I may additional libertarian candidate video later.

Democrat
Bill Clinton for Obama

President Obama Speech (click, disabled embed?!?)

Republican
George Bush didn't speak, otherwise I would have put him.
VP elect Paul Ryan's Speech

Candidate Mitt Romney


Libertarian 
Gary Johnson recent speech

Easy Money Ahead, Invest in Precious metals

Let me repeat for readers who are not long term followers.  I am NOT a Gold Bug.  I do not believe Gold is money, or that the federal reserve bank printing of cash is entirely responsible for rising resource prices.

With that said, today the ECB will announce details around a new save the Euro plan, which is being hinted at to include bond buying.  Once the ECB institutionalizes buying boys (aka Quantitative easing), the euro may be on a path to stability.  For all issues can be simply responded to by buying bonds issued to prevent risk rates to rise.

In effect, simply print money.

In principle, I think this is a good thing, in practice it will likely lead to some very unexpected adverse effects.

One of the effects is the western (and to some degree eastern) economies have now established.

1) Large companies are not permitted to go bankrupt
2) Fix income based on risk assessment will be short-circuited for governments and companies that politics deem safe havens.
3) Governments are not permitted to go bankrupt (until it costs more to prevent then let it happen)

These will have repercussions, one of which is net "easy money".   The only question is can easy money over-come credit deflation.  It may not now, but some day (month, year, decade) it will, and when it does, it isn't going to be pretty.  Look how long the ECB has taken to get to the point of agreeing to buy bonds and "save" the euro.  Can you imagine when easy money has to stop? Lag times of years will be devastating.

So onto investing.  We may be at another "bottom" for gold miners.  Then again today the investment world may rally on easy money, and collapse next week.

UPDATE 9-7-12: ECB Unlimited Bond buying announced.  Friday gold and assets rally.  Will this be a new bounce or a head fake?

Now isn't this fun?  I am still in GDX & GDXJ 33%

Why food prices have been rising

Most Gold Bugs state that food prices are on the rise due to the Federal Reserve bank printing more money.  While I can't dispute that it MAY have some effect, I really doubt it is the cause of food price rising.

The main action is Oil and USA Agriculture.

Oil prices are remaining high, due to Peak Oil and market demand that keeps rising.  USA is consume at 2001 levels, yet gas is much higher than 2001.   India, China, and other emerging countries have a steady increase in their needs, which is in accordance to my view back in 2008 (click).

Oil affects almost all goods prices, including food.

Other aspect is USA government mandate to convert a certain amount of corn into ethanol.  The levels are NOT adjustable due to food yields, but are steady increase in bushels each year.   By now, everyone should have heard how horrible a crop yield USA had in 2012, with some of the worst droughts in decades in the mid west.

Since America has finite land to generate food, farmers must choose crops to produce.  With Corn demand up, other crops may get less acreage.   This year, corn crops are estimated 10 billion bushels, with Ethanol consuming 45% of nations crops.  Corn is used to feed most livestock, causing meat to price increases.

Imagine if 45% of the demand for corn in a very low crop yield was to disappear.  Would corn prices go up or down?  The multiplier effect across livestock & other crop production would be impact-ful.

It is quite insane that Ethanol energy efficiency is still under great debate, but yet we mandate burning our food supply for fuel (click for studies) .  I currently believe Ethanol is a very bad idea, regardless of efficiency, for it pits our fuel prices, which are high, to force food prices higher. (Food vs Fuel)  We have turned farmland to produce food for us to eat in competition with the price of gas.

Ethanol would not be viable, if the government didn't subsidize.  So in effect your tax dollars are being put to use to increase your food costs.  Food prices to me are likely not linked to Federal Reserve printing compared to increase demand and low yields.
However Oil, Gold, and Silver may have more influence by monetary easing.

A very lengthy article is available with nice graphics at co.exist. (click)  one Image from there is below.
There is no investment point of this post, just the insanity of Government mandates to micro-manage the economy without consideration for corp yields and cost of feed it's citizens.

Just don't get sucked into food prices are up due to fed printing, it isn't that simple.

Wealth Distribution

My friend Bob sent me a link with a variety of graphs to illustrate the shift in wealth in the USA. When looking at graphs, keep a keen eye out for things that may slant the image, such as inflation over time. So while I may have some issues with these charts, overall they are a great view to show the shift in economics in the USA. I put one below, click here for full view.  Click Image for original Star-Ledge article containing image below.