Crash of 2013

I really love this blog, and wish I could spend the time to blog daily like I used to.

Work is insanely busy, and I have a wonderful boy who is 3 turning 33, time flies.

Today I will go back 2 year ago, to the day, on a prediction I made in post "Reaffirm that I believe the market will go to heck".  Back in 2010 into 2011, I was insanely bearish on the market.  Quite clearly, I was dead wrong.

What I didn't understand then, and I do now, there are no reliable laws.  Laws are agreements today that can be changed tomorrow.  Sometimes laws change simply by en mass wink wink, lets not enforce.  Sometimes laws are changed officially to change the landscape of what is reality.

Back in 2010-2011, I understood that what was being done then is doomed to fail, as I still believe today.  But I have changed on the 'doom'.  I no longer believe that the specific issue with the global financial system is 'printing money' per say.     As I have written since then, I believe what we are seeing is a financial system established by men in pointy hats in 1913 that try to use human processes to control something that is too big to actually control.    The rapid technology assault will uncover the weaknesses and destroy the system.  This is pretty much the same pattern for every industry technology has struck.  Unfortunately, I am concerned that the global financial system under assault may lead to not so nice consequences.

Here we are, with markets going higher, never ending higher.  It should be quite clear to anyone looking around that this is not the market highs of the mid 1980s, or even 2000.  This is a game score being manipulated to appease the fans that the game is going good.

Fundamentally, there is plenty that is going really good in the economy and technology.  I am very excited about many new industries pushing forward.  But when you look at the wages and breath of impact, it is a bit disappointing compared to past decades.

Which brings me back to 2011.  I posted

"So for now, I am playing long, I am also adding stop losses all over the place, with a bit of room to maneuver. I suspect that most of the market is doing the same, which makes this truly an insane game of chicken. I really don't know when I will jump off this ridiculous ride back into cash. For part of this game is the fear the USD will implode next.....something I agree will happen, but it's too soon. 2013-2016 is my thinking."

What I have come to realize is, the markets have zero to do with reality at this point.  What is in control is politics front and center.  Central banks are no longer influencing based on sane decisions, but instead on the will of the environment.   Everyone but anyone thinks pressing buttons that say 'ignore accounting' and 'print more money' will end well.  I am here to tell you for 1,000's of years many societies try this, it hasn't worked yet.

So I expect in 2013 a punch in the face for the markets.  And here is when it gets hard.

Gold, Gold miners, can they withstand the pressure.   They may go much cheaper also.  But maybe they won't pull back hard leaving everyone without a bargain buying opportunity.    The precious metal mining sector will reach unbelievable heights as a limited resource is subjected to leverage to push valuations artificially high.  This of course will happen sometime in the next 4 years when people are panicking, looking for security.  After the panic passes gold will be the most spectacular crash ever seen.  I of course, want in on the upside, and I may jump out too soon on the way up.

Between now and then is really the question, what to invest in.  For now, I have no good answers.  When the crash hits, and markets start to recover, one thing is for sure, natural resources for the next pump and dump years.  

The New US Economic unReality

Many may pontificate about the market direction, hard resource valuations, the effect of debt, health of nations, or any aspect of the financial reality since 2008 crash.

There are many things that make a marked difference between 1980's until March 2009 and from March 2009 to today.

First, the accounting system using fair market valuations was dismantled in 2009.  The REALITY is the measuring stick between 1980's until 2009 is not the same as we use today. Therefore if Mark to Market accounting has been suspended, we are valuing financial institutions on what those institutions say assets are worth - not what they are worth if they where sold.  This alone distorts the reality of corporate health, and there is no hard-date to ever return to the gold standard of accounting - recording asset values for what people would pay for them if sold.

Add to this, that US Government statistics are being distorted, the very basis for many financial decisions and financial guidelines.  For example, official inflation alters the income of disability, and social security payments. (and many other social programs).    I already covered how inflation is being routinely changed, in effect changing the measuring stick.  Also, it is widely covered how unemployment numbers are continually being adjusted, distorting any reality of the unemployment rate.

Throw on top of all this the recent scandals of the global interest rate (LIBOR) used to determine most loans has been discovered to have been gamed for years.  This affected literally trillions of dollars of credit.

Throw on top of that the Federal Reserve Bank is making routine purchases of debt, and lending (giving) money to foreign banks to the tune over 230 Billion dollars in the last four weeks alone.

Looking into the private sector, we have Nobel Laureates such as Paul Krugman who have only one drum beat, ignore today for a better tomorrow.  I hope the most ardent fans of such approach are starting to question the one-way mantra for decades.

Throw on top of that nations like Japan having their government directly taking over direction of central banks to promote monetary policy for the government direct benefit, is an outright attempt to shape their own reality.

All of this speaks to how we are in a new reality, the unreality from my life experience.  Under such a new reality, any market musings are futile.  The sticks to measure at every fundamental level are not reliable.  The will of the private and government sector is to promote distortion.  The one reality that does exist, is we are divorced from reasonable capitalistic controls.

May this bring a bright future, well, atleast for the people who this new reality is their reality.  For those who resist believing and take the red pill, I continue to be concerned.
The one item that cannot be forever manipulated is resources.  An example of how governments cannot control those valuations is seen repeatedly in history.  Every government that has tried, has failed.  That is an impressive failure rate.  For the latest attempt, one has to watch as Argentina implodes in 2013.  My only glimmer of hope is a privatization of money, which should bring on a new prosperity  for the next millenia.

Free Speech

Free Speech takes many forms, not always written and oral speaking.
The ability to wear what you want, do what you want, use money the way you want, and yes, say what you want.  As long as those activities do not directly invade someone else's rights to pursue happiness. (murder, theft, bullying, etc)

The internet is the biggest leveler of the playing field in the history of mankind from the top percent to the masses. Anyone can speak, participate, contribute to the social order.

To keep the internet vibrant and growing is GOOD for investing.  It enables new opportunities as I posted in my Manufacturing Revolution posts.
Allow the tiny few to control the construct, the internet, is doomed to limit everyone's freedom.

I urge to to simply sign this petition and pay attention.  Support free speech and don't allow it to be taken in the dark.

Googles' Free and Open Speech campaign

Keep the power with the people.

Hostess Bankrupt, who to blame?

I have not done my typical 2 hour scan and seek 'the truth' on the Hostess bankruptcy.
What does amaze me is how the public unions is publicly persecuted and we, the people buy it completely.
It should go to show how amazingly powerful the media is, and how it is not a LEFTIE establishment as popular myth says it is.

Reporting should provide full analysis on topics, so I the reader can get the short summary.

Take a look at fox news coverage here titled "Hostess to close, lay off 18,500 after 'crippling' union fight".
Notice how the final straw gets all the blame.  Its like blaming the doctor when a 500 lb fat man dies of a heart attack on the operating table.

Now, back to how i started this post.  I did NOT seek the truth on this topic, to spin to what I believe reality is.   But I do notice the news is not impartial, it is framed in a very specific way, to place 100% blame on the strike at the very end.  The news reads to blame greed of unions for the company failure.

Now, lets look at an alternative view.... What Killed Hostess?
For a more radical view.... Blaming it on Venture Capitalists.

What we are seeing frequently as baby boomers retire is massive improper funding of a pension.
Pensions, should have never been allowed to exist.  They are a future promise, to be paid by magic in the future.    Yes some pensions are well funded and self-sustaining, but many many more are not.

Under funding a pension, lack of re-investment, innovation, food attitude changes, greed resulting in debt piled upon debt, and bad management. If you are a manager, and a victim, then you should not be a manager.  Own up and take responsibility, or join the blue collar workforce.

Blame the union? I am sure they are not innocent.  But lets be more objective than blame the final act, that 500lb man dead on the hospital table, it's not the doctors fault, its the shape the man/company was in at the time after years of abuse.

Don't take public spin, its almost always wrong.

Power Back and Internet Restored!

I got power back a week ago.
As of about 3pm today, my internet has been restored.
That was 19 days of NO INTERNET!  I haven't gone that long without the net since it was first made public available in early 90s.
I may go a little overboard posting :)

Deflation everywhere, except monetary policy

The typical view many armchair economists take is viewing the capital markets and central bank policies, calling foul when central planners bend or break the law in the spirit of saving the economy.

I agree in spirit that central planning is bad vs free markets.  If a regulated, transparent capital market was set free to evolve on it's own, there is no question in my mind that the world will adapt to change much faster, and efficiently.

But what most miss is part of the problem IS efficiency.  Technology RUTHLESSLY tears down inefficient and helps evolved business and social fabric to a more efficient model.   What efficiency effects are basically less people can do more.  Meaning, you don't need as much middlemen from the Makers to the Consumers.
As this happens, the net result is if your not a maker, or wealthy enough to be a eager consumer, you fall into the cracks.  This group of people is ever widening, as technology moves forward.

What compounds this effect is global trade efficiency, in effect allowing others around the world compete for work.  Net this is a good thing, for people who most desperately needs work can get work.  But the effect when looked at closer can be more personal and disturbing.  Plus global trade raises questions of what is efficiency....and what is fair.

Easier examples of technology efficiency effect is music industry, software makers, open hardware, financial trading, retail distribution, farming, and hosts of other industries.  When you look at each one to see how they have changed and are changing over the last decade, it is easy to see the displacement of workers.

The makers and consumers benefit from a more direct relationship, yielding cheaper prices and more competition.  But the channel distribution now yields less workers.  Consider WalMart vs mom and pop stores across the country, music stores vs iTunes, local book store vs Amazon.
Farming is moving towards 100% robots ...except for on-call mechanics...as cheap labor is driven out by cheaper labor, robots.

When you see the changing landscape, if left up to a more efficient market, we may see honest assessment of unemployment in USA of 25% or more.  Possibly in some areas of Europe of 50%.  By artificially keeping inefficient human processes afloat with Government spending, Central Bank intervention, what is being done is avoiding the reality today in hope a better answer appears tomorrow.
Extrapolating into the future, (with DOUBLING of technology every 18 months!) this problem will accelerate.  Picture a world where renewable energy accounts for 75% of energy use, self driving cars, planes, google glass, and robotic factories.  A world where a flexible robot can be easily adapted to a wide variety of custom tasks.  This is NOT a world of full employment, for those less skilled simply cannot compete vs automation.

So when people pound the ground that we need to return to an efficient capital marketplace, you best be a maker, a skilled specialist, or a well positioned consumer, for the rest may not like the world that leaves them out.

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.

Giving opinion, is it worth it?

I have posted before about some concerns about blogging some of the political aspects of the topics before. What I find most disconcerting in the years ahead, police will be able to sweep a room and using face recognition technology to associate me with things I posted....anywhere.....ever.
In effect the posting on the net will put me into different categories, one of which may plop me into "anti-XXX" or "radical", etc.  That future cop will likely be WAY less open minded than I'd like.

I could delete this entire blog today, and it would make zero difference.  Everything is backed up, archived, and indexed.  I could even change as a person to the core, heck, I could be one of the worst people I rant against today someday. But the internet scan will not take this into account.  

I used to hear in high school behave or "it will go on your permanent record".  Like anyone looks at such a thing.....  But the internet EVERYONE looks at it!  Even a future employer.
A simple search on WebSurfinMurf reveals WAY too much about me that the random public should not have.  Its a pretty small jump to find out my real name from there.

I had a super tiny altercation via email on an opinion with a friend today.  It amplified to me that if a friend has such a radical reaction to relegate me to crazy.....what about people who find offense about my postings on Goldman Sachs? Financial Companies? US government? Current or Future employer?  Worse yet, for my son's future college or employer!

I am in effect, playing with fire posting ANYTHING that could offend against my future self.

Therefore, I am going to try to roll back severely my rhetoric.  I did a notch back in 2009 when I realized above, but I didn't turn it down enough.    I want to cut this blog back to more dry facts and avoid calling out opinions on corruption, or specific companies issues like Goldman Sachs, etc.

I'll continue to report on Money, USD, Fiat Currencies, bonds, and some other topics along these lines that are controversial.  These topics are  the next crisis and it  too important to not contribute to the social discussion.

I am adding this post to my corruption tag, so it can show when I tried to tone it back.
I urge people to read Mish and Market Ticker, for they do not pull any punches.
 10-24-2014 - see update 2013 Giving opinion is NOT worth it

The Media News Bias

Mish has a great rant on his blog about mainstream US media vs other sources such as Russia Today.
I think of myself as open minded, but I also recoil a little about getting news from Russia Today.  I guess my childhood of being told over and over that Russia is the enemy (and they are!) has me on the guard.

But the US media also is the enemy, for if we pull back for the last 20 years, the media has NOT been on the attack and helped the masses understand the important issues and keep their focus on the ball.  Instead its "Entertainment News", and less news, more opinion/spin.

So how can I trust US news to give me the current important news if the media has not been focused on core political and economic issues?

This doesn't mean I trust Russia Today, but the coverage I have seen rings more informative than many other news sources in the last few years.

I encourage you to read Mish's Rant Privatizing of Gains and Socializing of Losses; You Want the News? From Where?, and a good episode of Russia Today below.  It is full of opinion, and not facts, BUT it is very apparent when opinion is being given, unlike fox news.

Proof of Economic Recovery

I have worked in IT for over 20 years, and I have seen my fair share of economic downturns. Technology tends to be hot during economic upswings, and a wasteland during an economic downturn. Most companies can "get by" without significant upgrades to technology.

Recently, I have noticed in my travels a few things. First, my own work is at it's busiest since 2006. There are some factors that include my specific specialization and lack of cross training. But in general, I do view it as a sign that maybe the economy is getting better.

In the last few weeks I have been traveling for work, to Washington DC and Minneapolis. Last week in DC hotels where completely booked. This week Minneapolis hotels where close to fully booked.

So it will be interesting to me how the markets and the economic indicators play out over the next few months. From my "on the ground" observations, business is doing OK. Booked hotels for entire areas and technology consulting work picking up.

Granted, I am discounting the close to 17% unemployed directly or by becoming a discouraged worker.

Just wanted to share a bit of observation, markets should keep bopping around through August.

good luck.

Blog hooky

For the last few weeks, I have been traveling for work. Ontop of that, I am in a wedding parties and traveling to a third destination wedding this summer.

Wife is back to school full-time, my son is getting bigger by the day.

Plus summer is here. What I am leading up to is I expect to be a little spotty on my posting the next few weeks, as it has been the last two weeks.

I am simply waiting for Gary of the Smart Money tracker to signal time to move into gold miners. And that may or may not be when the Federal Reserve Bank announces a twisted form of QE3.

The Federal Reserve Banks Qe2 ends this week, so expect the next month to be dicey. Maybe a down turn in-spite of my slant of a final upturn.

Please keep on checking back, I'll try to make time during my travels.

Three strikes, time for global economic implosion

The global financial companies are brittle, trying to keep anything and everything from triggering a massive deflationary event. This would not be a problem if the banks and other financial institutions where sitting on solid assets and cash. Instead the financial companies are WORSE off than in 2008, since there has been refusal by governments to address the core problem, excessive leverage and bad loans.

Instead the US government has rolled back (and the world followed) Great Depression era accounting practices such as mark to market accounting to value assets. Instead we now have fantasy asset valuations. Combine that with a Credit Default Swap market that to this day remains unregulated, and the liabilities exceed global GDP by many times.

This concoction has created not a financial system, but rather a debt pretend and extend system, that one day, cannot be extended. Its like a huge Jenga game waiting for a collapse.

And here we are, with the stock markets rallied up over 100% from the 2009 lows, USD near its low, commodities over-valued. But real unemployment is over 17%, companies are not hiring, unemployment benefits are expiring after 2 years of payments.

When the US financial system deflated in September 2008-march 2009, the US was quick to re-inflate through accounting fraud and Federal Reserve Bank money games.

This time, it is looking like the next punch for the financial system will not come from the USA (initially) but it's a race between Europe and China. It doesn't matter which wins, for the other will quickly follow the leader, with the US taking 3rd place in the next collapse.

As such, the USD ironically will once again become the shining gold standard of investments, as the Euro shows to be fatally flawed, and China may experience a full blown revolution. It's obvious to everyone that the Arab nations are not safe havens, and the rest of the countries are either too small, too immature, or too corrupt to matter to the global financial community.

Lets take a look at the world's leading regions to lead the world into the Greatest Depression.

Europe - Greece leads the pack, as it defaults it will trigger a cascading failure among it to other nations, it may be a slow fuse, but it will be lit. To Germany's credit, they are lighting the fuse by taking a stand on the extend and pretend global mantra. Kudos to Germany, the only adult standing in the global financial system. How Ironic that after WW1 Germany's monetary games triggered hyperinflation, leading that country directly into WWII. Here we are Germany by refusing monetary games, may be triggering something akin to WWIII. While hopefully not an all out war, you can be sure that countries relationships will become frosty once the global credit collapse begins in earnest.

China - The grand plan that by awaking the Chinese economy, they can lead the world into an extended growth period is in trouble. I believe Ronald Reagan saw the demographic wall approaching the west, and that is one of the reasons why he opened relations with China. (aside from corporate obscene profits and ability to gut middle class america) But the Chinese demographic is a lure and a curse. For China has over 1 billion people, and if even 10% of the people become violently unhappy, that's over 100 million people to stir revolution. China has shown America how to exceed in extend and pretend games, and has built the worlds largest ponzi scheme, putting america to shame. Now, their country faces on multiple fronts pressures, initially stemming from natural resource prices rising. China is starting to have government protests in urban areas (historically in rural areas). Violent protests, bombings, and uncovering of international fraud is beginning.

USA - While the USA's problems by now are well known, top banks are insolvent but exist with extend and pretend, the newly issued liabilities are not known. If these banks were allowed to go bankrupt, they would have not had the ability to "double down" by taking even RISKIER liabilities. It just goes to show how far a junkie will go to continue a high. Amazingly, now these risks are indirectly the US governments liabilities. So while I place the US in 3rd place for the next implosion, the US does have the ability to race past others during the next downturn to take first place. This will be determined by political choices made with the private debt. For now, it is apparent that the recovery, or lack there of, is now on the downswing. Small businesses outlook dims combines with starlings of resource cost issues. The US economy is going "no were" fast.

Timing WildCard

The Federal Reserve Bank or IMF may announce a new extend and pretend game. It may buy time, but it will only make the eventual downturn worse.

Closing

So there you have it. I may actually already start buying DXD again, since the fuse for the next downturn is lit. It could be tomorrow, or 3 months from now when things start to accelerate. One thing I have learned since 2008, that people will do anything, ANYTHING, and EVERYTHING to avoid doing the right thing. Extend and pretend will always be chosen until that choice is removed by force.

This Week with no charts

I may do a chart post tomorrow, I'd like to see some action for Monday.

First, I highly recommend reading John Hussman's post about the US financial situation, a great read.

I read a very disturbing blog post by Gary of the smart money tracker, as part of his paid service.

It's disturbing because he reads this on a larger trend as I read it, and it isn't fun.

I'll paraphrase Gary, and leave out details (pay for his service), but the overall sentiment as me is spot on. It is very disturbing to read something he posts and it aligns so well with my own worst expectations.

It's no secrete that bloggers such as Mish, Karl Denninger, Slope of Hope, Zero Hedge, and many others found on the right of my blog all see doom and bad outcomes for the US economy. And many of the bloggers have been saying this market rally cannot last. And it looks like finally, the market back has been broken to the down side.

But how this unfolds really needs to be seen. Here is what I expect (and is echoed by Gary, 95%)

• Market will decline from here, with some nice counter rallies, but none will break the high made of S&P 500 of 1370 (or if it does, very short lived).
• The market at some point will decline enough, and create panic enough to ease the political environment for the Federal Reserve Bank to do a QE3, or something akin to that.
• The markets will rally....HARD. So hard, it is apparent that the market will break the old highs (or if it does, short lived), but then the markets will fail.
• Net result will be a stock market that implodes, down to 2009 lows (or somewhere near it). Real unemployment shoot higher, and commodity prices surge.
• It will be a one two punch, that will cause great strain on everyone in the USA.
• QE4, Qe5, or ANYTHING other than what I have been saying since 2008 will result in economic disaster. The laws must be enforced, the criminals put into jail, the losses taken by private sector, and the government must get its fiscal house in order.
• US Dollar for near term (until QE3) will rally

Now, it is key to understand I DO NOT believe in fate or destiny, just probability. And I see the probability that the western countries are lead by immature people, over an immature populous, not willing to take on hard work to address core issues. As such, the wrong choices will be done, until the easier choice is the right one. And what I have been posting about is the right one, and it will not be done until there is nothing else to lose.

Key points to take are:

1) The stock market will continue to be depressed (With nice rallies)

2) Natural resources will rise in price out of the next deflationary collapse, at accelerated rates. Gold will do very very well.

3) Federal reserve will do a booster shot, it will look great for a while, but it will fail

4) End game is market collapse, high unemployment, resource costs skyrocketing, housing prices collapsing, interest rates sky rocketing OR credit is just hard to get.

5) The outcome is not determined, and could change if USA gets serious about cleaning house.

Fun

Posting less...why?

I continue to read on a daily basis the information streaming from all corners of the earth related to the financial crisis.

From various parts of the USA, different states and cities are bankrupt, but refuse to recognize the reality. The US constitution and in general, the law, doesn't apply to those of privilege. As a simple example, it is well known trillions of dollars of fraud in mortgages where perpetrated, and not one conviction of wrong doing.

I read Mish, The Market Ticker, and many others you can find on the right side of this blog.

For me, there really isn't much to say. I can repeat the onslaught of information, but it boils down to this.

1) Rampant fraud and government spending are responsible for the market rise, not solid fundamentals.

2) The debt pyramid is crumbling at various levels of society, Greece, Spain, Ireland grab headlines. But the USA can't manage to trim any fat of a 3.6 Trillion dollar budget, and thats with 1.6 trillion in debt spending!

3) States like California refuse to face reality, and states like NJ while trying to face reality are not doing enough.

4) Most of the big US banks are insolvent.....and if you think they are solvent, ask why hasn't mark to market accounting been re-instated? Why have banks stopped or slowed down drastically foreclosing on houses?

I really don't have any commentary to add except that the massive fraud and stealing from each other will not end well. I would not be surprised for all of this in the years to come to result in another war. America has 3 wars now, why not 4? Heck why not 10? Apparently financing is not an issue.

So I read on, I plot along trying to plan my savings into keeping something to help my family in the future.

I am more focused on work, family, and three weddings I am attending this year. Life gets busy, no time to post about the world collapsing. :)

Have a good one.

Reaffirm that I believe the market will go to heck

In the last few months I have stopped posting about falling stocks, shorting, or the market is doomed. Recently, I have only focused about the long side of resources, and the stock AVL.

Let me be clear, the world financial markets are in great danger of an all out horrific decline, the likes that will make 2008 look like an opening act. I am a firm believer that in the next few years, the market and world economies will be shaken harder than ever before.

BUT, that is not to say this will start tomorrow, next month, but you can bet by end of 2012 we will be facing this financial crisis once again. I actually believe it may start as early as May. But at the end of such ridiculous rises in the market......in the face of reality being exact opposite....markets tend to soar to highs never thought possible. It could be that the high is in the past, just a couple of months back. But it also could be the next few weeks.

So for now, I am playing long, I am also adding stop losses all over the place, with a bit of room to maneuver. I suspect that most of the market is doing the same, which makes this truly an insane game of chicken. I really don't know when I will jump off this ridiculous ride back into cash. For part of this game is the fear the USD will implode next.....something I agree will happen, but it's too soon. 2013-2016 is my thinking.

So if you have some tidy profits, selling some right here is not crazy. Putting stop losses is a must as we enter the final round of financial parabolic blowoff chicken.

Why do I think this will happen? It's pretty simple. Resources are flying too high, causing too much political stress around the world. The free money printers will need to take a break to apease the critics. Then once we have a nice disaster, the critics will silence and the money printers will resume. The NEXT time the resource train will take off quicker and possibly steeper.

The problem with all this pontification, is I could be wrong (no matter how unlikely that may be!) . Maybe the USD is about to take an epic nose dive, then being in resources is a great place to be. So there is always that doubt, that pure cash is just different risk.

I wanted to set the record straight, what I said in 2008 STILL HOLDS today!

To fix the system, its pretty simple, and until we see the following, the system is broken.

1) Return to basic accounting standards in place from the 1940's until 2000.

2) Return to mark to market accounting in place from the 1940's until 2009.

3) Force companies that are insolvent....to go bankrupt! (US government get out of private companies)

4) US government debt machine come to a screeching halt. Lets try 500 billion debt per year instead of 1.6 trillion!

5) ENFORCE ALL EXISTING FINANCIAL LAWS....PUT PEOPLE IN JAIL FOR MASS FRAUD!

Until above happens, the bottom is not in. And my theory is, above won't happen until all other shortcuts and scams are tried....and fail. The moment of truth will be the US choosing collapse of us currency or do above. Until then, I do not have faith in my fellow man to do the right thing ahead of such a disaster.

Therefore, we will have a rocky road of meager attempts to appear respectable to the past 2 years of outright irresponsible actions by the government. This will result in wave after wave of market turmoil in the years to come.

I am thinking the moment of truth comes in 2013-2016 with the next president's term.

Think thats too long? Look at Japan, their stock market and economy has been flatlined for over 20 years...and counting. And that country had one of the highest savings rates in the world! Good luck to good old Americans living on borrowed debt to make this crisis last 20 years. I give it 8 starting from 2008.

Great Depression Averted

Friend of mine, Bob Schulties, emailed me today asking my thoughts of this article:

http://www.nytimes.com/2010/07/28/business/economy/28bailout.html

I read the headline, thats it. Why? Here was my response.

The bottom will be in when this happens:

Banks must use international accounting practices as we did for the last 80 years. Mark to market valuation of assets, no "off balance sheet" debt, etc.

Simple math Assets one column, debts other column, valuation is what the capitalist market place will pay. (Example, if I try to sell my house, what $$$ will I get).

Until the above happens, we haven't hit bottom. We are not recognizing our debts, not paying our debts, not COUNTING debts when evaluating our solvency.

Thats where I stand. If you believe fixing means changing the rules to evaluate fiscal health, by all means, buy every share of the top 10 banks. Don't invest anywhere else. On paper, they are rock solid according to new rules.

Back in 2000 there where dot.coms that where rich, back then profits didn't matter, wealth was measured in market share. If you believed that, you lost a fortune.

Time for Government to double down

The deflationary forces are appearing everywhere. Reality is setting back in after burning through over 1 trillion dollars in drunken spending (stimulus?) after this past year. My hope WAS after government saw that taking such actions are fruitless, and we need to get some fiscal discipline. To lead the country into new industry development. To DEAL with China's trade imbalances (waaay too late), to stop the games and get to work.

The charts, the deflationary forces re-appearing such as retail sales down 1.2% in a month, unemployment about to rocket higher due to the temporary census jobs expiring, European financial destabilization, these event you would think trigger someone to say "we can't keep doing the same thing, we must change course".

In addition, Money supply, classically known as M3, which has been discontinued by the government tracking since 2006, has taken a nose dive not seen since the Great Depression. The web site ShadowStats still tracks M3, as shown below. This is also Deflationary.

I am starting to think, there is no way the government will do the right thing. The government in the next few months WILL announce some crazy scheme of drunken spending to top the last year's efforts.

But as a stock trader, the question is when. I have to assume its not "tomorrow", and trade without the benefit of insider information. If the US does do something drastic, to "double down" on making the US insolvent, I fear that will be the jump the shark moment for the US.

US bond rates are down, US dollar valuation is up, world looks "bad", US, not as "bad" relatively speaking. That edge give the politicians room to double down, to in effect "use up" the good credit available to the US. Then to throw that good credit down into the debt monster in a fruitless effort to stimulate demand.

The point of this entry is to call out that if the market cracks lower, the decline is at the mercy of those who can change the game in the near term. And the US government now has the breathing space to do so. But once the credit of the US is "used up" and rates move towards 5% for 30 year bonds, the government may finally get what is seems so hell bent to accomplish, and that is cause a US solvency crisis.

Insolvency is America's Destiny

All along I have been looking at the future of a deflationary collapse beyond anyone's imagination is hitting the world and the US, as a result of the world's greatest inflationary fraud-ridden credit bubble.

If you look through history, these types of credit bubbles cause immense implosions, that lay waste to the countries involved for a few years. What I thought how this was going to play out, has not. Specifically I thought when government officials saw the real "math" that was occurring, they would buckle up and do the right thing. Instead, like everything humans do, the wrong thing is pursued to avoid pain today.

An article I found on Mish was one of the most perverted actions one could dream up. The New York Pension fund is going broke, and townships cannot afford to make payments to keep the pension fund obligations met. (excludes NYC)

Now, the "right" thing would be to start immediate negotiations to curb benefits and cut expenses to meet the benefits. Basically, to ensure the pension fund wasn't set on a course of utter complete fiscal disaster.

Instead, the path chosen was what will amount to in the future is pension funds owed will not be paid out in the years to come. What the NY governor proposing and will likely pass was to borrow FROM the pension fund, to lend the money to the towns, to PAY their obligations to the pension funds until 2013 when principal payments to begin.

Read that again, please. Because the towns can't make their debt payments, they borrowed from the pension fund, to pay the pension fund for debt payments through 2013.

It is really complete insanity. It is basically a "double down" in poker by borrowing from the house after you lost all your money. Yea, it is theoretically possible this will work, but by any sane judgement, its the wrong course. But because the politicians can describe a scenario, no matter how unlikely, that it could work out, it gains support.

My god. The fiscal decimation this country will face after every single avenue of credit is used up, and when nothing can be borrowed anywhere is reached, the DEFLATIONARY collapse that will come will be massive. Beyond my own worst fears.

There is still time to stop this insanity, but from the looks of things, the goal is to create the largest bubble implosion the world has seen. Got to love America, nothing is done "small". If the media crucifies NY politicians for this action, I will have hope that we will avoid fiscal destruction in the US. Without a vocal critic to energize the people, the worst road will be taken to avoid the pain today, and kick the can further down the road.