Market direction

When you look at all the news, corruption, revolutions, its pretty easy to point to the market and say it has to hit it. One thing that I have learned since 2008, is the market is not a pure report card of economic health. It is an almagum of politics, perception, and financial realities. So as I look at the market, I try to remove my predispotion to the view of problems with corruption, currency wars, problems with labor, and middle class crush. From purely a chart perspective, if the S&P500 traded between 1700 and 1500 for the year ahead, it would be a reasonbly decent outcome.

Aside from general market direction, we have my beaten friend, Gold miners ETF.

Best I can say for this thing is, what is down, probably may go up. Who knows, it can stagnate here or rebound. The spin seems to be the sector is beaten up, and time to buy. What I have, I'll keep, I really don't have the stomach to double down. This maybe a golden opportunity of a lifetime, if your not in, a little here is lower risk. Just take alook at the valuations, it hasn't been this bad since the economic implosion in 2008. Or wait for the red and blue trend lines to cross, that usually indicates its on the rise for a while. Then we have Gold (GLD), just plain ugly!

Best I can say here is, as long as it stays above the longer term trend line, still an upward moving asset. For the USD, it's demise is a tad bit overblown, its held up, although quite flacky in recent months.

So your guess is as good as mine. I do think there is ONE asset above all to watch, the cost of debt. I REALLY do think this is the entire story. Everything above is a sideshow. Why? Because in 2008 I warned (and many others) that the shift was from bank/private risk to government risk. The governments of the world have shouldered the burden of 'stimulous' for 4 year. Most governemnts have been burning the midnight oil on debt creation, and taking on risk assets. The US government buys 85 billion of the worst debt obligations from banks every month, taking them on. In effect, the problems are being buried in the good old faith and credit of currency system. So what we have here is a trend line of 30 year interest rates on the fall since 1981, and recently its been rising. If this trend ever breaks the downward two green lines, its pretty much over folks. I don't think the system can take rising debt costs.

So there you have it, market valuations high, Gold miners eating dirt, USD valuation holding, and US 30 year treasury rates, the foundation of cost of debt spiking in recent weeks. What is next? Tune in for second half of 2013 for the answer.

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%

US Debt, Money, and Future growth

The US National debt is now on AVERAGE 139,747 dollars per taxpayer, and over 50K per person.
I think its pretty clear by now, this debt based money system is doomed to fail.
Back in the 40s through 1980, wages grew for general americans, and disposable income rose.  Savings per person also grew.  Since 1980, all of that has reversed or at a minimum flatlined.

Per person, people are not experiencing increase wealth or prosperity, overall.  This is not the baby boomer go-go years, we are in the baby boomer retiring years.

There are only a few end games to the debt based system the US and by extension most of the world is on.

Currency Devaluation - Basically we borrow money for 10 dollars that can buy 20 apples, and pay back 10 dollars that can buy 1 apple.  If this manages to occur, there is much political volitility going to happen, not to mention possible currency collapse.  Also historically Wars are started over such gaming of the system.

Economic Growth - The idea basically is the US and other debt based countries (think most of europe) reverse course and start to grow well.  Salaries grow, disposable income rises, and more taxes are collected.   This time around the politicians won't do what they did in the 90's to 2012, and that is increase spending.  Instead they curb spending AND pay back the debt AND the country continues to prosper economically.   While a great outlook for the next 30 years, I highly doubt it.

Indefinite Debt - the idea basically is interest rates can fluctuate, but yet the countries manage to refinance debt indefinitely.  This is problematic, simply look at Ireland, Portugal, Greece, Spain, etc.

Default - Basically do a Greece thing, and tell the world they can't have money back for their US bonds.  Not a pleasant aftermath.

Pay It Back without significant growth - Basically all services would need to be cut to near zero in the US government on Federal, State, and Local levels.  The money collected redirected to pay off the national debt over 10-20 years.  While possible, the effect on society may lead to revolution, as basic services cut to zero.  Not to mention the army of jobs lost between government layoffs, and the jobs related to those employees. (restaurants, taxi, air, lawn guy, landlords, etc - whatever employed people spend money on)

Change the Monetary System - At the heart of what I see happening is two elements.  Lack of law enforcement and a debt based money creation system. The lack of law enforcement I'll leave aside, but it is a critical component to changing the monetary system.

Every Dollar the US government creates currently is done so with banks buying US government bonds, that once purchased, allows the US government to create new money to pay bills.   In essence, the government if forbidden to create money unless a bank buys a Bond, and assigns a rate of interest.

Granted, these bonds can be bought by anyone, but the broker-dealer system has the bonds primarily passing through the Banking system.

What if the government didnt need to sell a debt-based interest bearing bond to gain "permission" to create new money?  What if, it simply created new money?  Most equate this to currency collapse, and in some ways cheating.  Perhaps.  I think that the government should be able to simply print new cash.

For forcing an interest rate onto the government to create new money is not sustainable.  Also it smacks of why does the government need someone else's permission and a tax-rate assest to it to print new money?  How does that make it more legitimate?

The current debt system is now so deep, I think its time to realize it is impossible to pay back.  Us can default, which i think may bring down the entire system.  Indefinite debt won't work if rates rise.  Economic growth of significant magnitude while possible, is unlikely.  A new boom such as biotech will lift only the most educated, not the masses.

That lease a system change.   I dont think any major shift can be done to prevent a crisis.  It is ONLY in a crisis will people accept basic sweeping change.  If raw printing is decided, and currency does not collapse, we will enter a new era of money creation without debt.

Then, the only thing left is to enforce the law and ensure the currency faith is kept.

What does this have to do with investing?  Well, people keep worrying about the US debt.  At this point it is almost irrelevant.  The end game is known, the debt cannot be paid back under the current situation.

People think that growth, indefinite debt, etc will be the answer.  I say we are headed for a radical shift, and a debt based system being modified is the path of least resistance.

I would expect for the years ahead, gold, silver, and other "backward' money systems will gain in value significantly, as countries like China try to become a legitimate option to the USD as currency leader.   Once such a shift is announced, I expect gold will hit the high of this entire bull run.

That will be the time to sell, it will be hard, for everyone will be running to gold afraid of the new system,  Couple this with China/India populous buy gold/silver in huge quantities as their countries grow and I still like precious metals.

US Federal Debt

Just wanted to take a quick moment to post about US Government debt.
Back in 2008, I posted about US debt, and linked to a movie called I.O.U USA.
That movie projected a scary budget debt for 2008 at 410 billion. (ended up 460 Billion).
In 2009, the final year for George Bush budgets, the debt was 1.4 Trillion.
Since then, Obama has managed to keep the deficit each about  1.3-1.5 Trillion.
This chart shows 2010,11,12 each one about 1.3 trillion per year.

So at end of 2009, US total debt was at 11.9 trillion.  the projected debt at end of 2012 is 16.4 trillion, a run rate of about 1.5 trillion per year.  I am confused why the site that I used doesn't align with the 1.3 trillion figure.  So lets go with 1.5 trillion per year for Obama, 100 billion more than final year of Bush.

That is a WHOPPING 41% gain in debt in 3 years!!

One can clearly see this is not sustainable.  Matter of fact, if the chart was a stock chart, many would call for stock collapse as it can't continue to be a parabolic rise. See below.

The key element to keep in mind is a DEBT BASED system with the chart above CANNOT continue forever.  However, there are many ways to morph this system.
One is to eliminate debt based system.  If US simply printed money or the Federal reserve bank bought 100% of US bonds, debt magically becomes irrelevant.

This of course can bring on new problems, one of which could be currency collapse.
But theoretically, it could solve the parabola above.

As for blame, well, there is blame for each political party.  Using the chart below, clearly every president since WW 2 was fiscally responsible, until Reaganomics.  Since then Reagan the big W clearly did much to blow up the debt.  If Reagan and Bush where fiscally responsible, we would have been debt free by the time Obama rolled in.   I hear much about how horrible Obama is, I am not a fan.  But he isn't any different than Reagan or Bush for budget responsibility.

I would love to see deficits of 460 billion, seems so reasonable now.....and I am sure in a few years 1.5 trillion will seem like the "fiscally responsible days".  Republican or Democrat, the outcome is the same, pander and kick the can, it is only a matter of the packaging.  

Europe failure could trigger global depression

The Euro is not a true currency, but is a currency peg.

The euro was doomed to fail in it's current state the moment it was created.

Will Germany agree to debase the Euro and therefore Germany helps pay the tab.

A great video with Chris Martenson making the call Europe will print and Germany forced into this path.

The only question is will this happen before a true global crisis or will 2008 repeat?
Chris Martenson is author of crash course I have featured before.

Well worth the watch, first 15 minutes of each video,

Martenson on Fiat Currencies, exponential functions, and energy crisis

Europe is a Giant Ponzi Scheme

Good watch on Euro is not a proper currency, and the government debt bomb.




I am starting to think pure fiat and no bonds is the only way out....but of course it wont be done right and will lead to worse things.

Truth on Money from Canada

This video is awesome, Paul Hellyer talks directly on what is root cause, money creation with interest rates attached.  Also how the entire financial system is fraudulently high risk currently.

I don't agree 100% with everything said, but much more so than reverting money to be made of gold or current system trajectory.  Please see my series What is Money for my view of money.

Capitalism and Austerity

In Capitalism, there are suppose to be winners and losers, in a sort of evolutionary game of business.   In business if a company can't hold up it's end of an obligation, it defaults, and the lender takes the hit as well as the borrower getting a black eye on credit worthiness.

That is how it used to work.  As it is well known now, most larger institutions are allowed to avoid taking losses, through changing of accounting rules in place since the great depression. (mark to market).   Also by quasi government institutions setting up special funds and funding. (Federal Reserve Bank).

What we are seeing in Europe is similar, but since there version of Federal Reserve bank and their governments can't just print money at will, they are shifting in the other direction.  Asking debtor nations to cut back.   What this really is the lenders wanting to avoid taking hits from the borrows inability to pay back.

So instead of taking the hit, they want everyone to take the hit...for decades...or however long it takes to get their payment back.


Below is great video to explain all of this.  I don't agree with every sentence here, but 90% is on the mark.  Well worth the watch.

European Crisis ahead

I am continually amazed at how incredibly irresponsible people are at their jobs and responsibilities.  The European situation was obvious to me and many other bloggers years ago that they where sitting on a pile of lies.  A pile that makes the USA lies look not that bad.

And here we are, day after day, month after month of the European political drama of denial and patchwork promises to stabilize the union.   What have Europeans gotten for all this effort? Their (and US) tax dollars thrown at bankrupt countries, banks, and other financial institution with NOTHING done to address the root cause, excessive debt, lack of transparency, and mark to fantasy accounting.

Greece's bond rates I have published before soared.  Now its spreading to Italy, Spain, Portugal, Ireland, Belgium and even France!

The leader for being the next Greece fiasco is Portugal, with soon to follow Ireland, Spain, or Italy.
Once one of these countries become the next Greece, I predict we won't have a 3rd, but a 3rd, 4th, 5th, and 6th at the same time.

Prediction: Europe is incapable of doing the right thing, as America has proven it isn't either.  So we must have a European crisis.  And Germany WILL buckle and print the euro just like America.

Next its a coin toss on who goes down next, China, US, or a long list of other countries.
But for those who think the US is untouchable, your just like most Europeans 1 year ago.

Once those countries buckles, then its time for the global currency crisis.  I still think 2013-2018.  It takes quite a while for this to play out.

Greece destabilizing fast, time for European meltdown?

Greece is destabilizing fast.  Greek prime minister George Papandreou replaced the top brass in Army, Navy, and Air Force in a surprise move.   This is following another surprise move by announcing holding a public vote on  EU bailout agreements, as soon as next week.

Government Greek 1 year bonds now pay a return of 205%!!!
If you bought 10,000 euros of Greek government 1 year bonds, in 1 year, the bond will be worth 30,000 Euros!

The current proposed plan is to cut bond debt by 50%.  So if the 10,000 euros turned to 5,000 Euros, in 1 year it would be worth 15,000!  Still a 50% gain for 1 year in bonds.

It should be obvious that this is not risk free.  There is a reason why the rates are so high.
Because the government is destabilizing and you may get ZERO return on your bonds.

And if Greece falls, expect Spain, Portugal, Italy, and Ireland to  be not too far behind.
If Europe enters into a classic deflationary collapse, which is once again it is looking to be, the entire market could get a big flush.

Good luck.  We live in truly historic times.

When does the other shoe drop

It is quite clear the markets are in rally mode.  Nothing moves in a straight line, but assuming Europe does succeed in advancing its voluntary debt forgiveness but this is not a default according to law plan, markets may levitate for a while.

But there is a fly in the ointment on multiple fronts.  First there is this Christmas sales.  The US Economy is still judged by public consumption.  So if sales are poor, or margins cut deep, companies may not have a good season.

But lets assume that sales do OK, what else is on the horizon?

Think back to August, what news was on every tv, every hour, and had a buzz about on every news program?
Think back.

Wait for it......

The US debt default, end of the world.  How quickly we all forget the end of the western world almost happened in August.  And it was true! right? It wasn't political.....wait....maybe it was overblown slightly.  It was a crisis right?

I am here to tell you there was ZERO crisis.  But it doesn't matter about reality, it is the perception that matters.   And at that time, the debt ceiling increase passed, but under the condition of a special super committe is formed to determine government spending.  That the committee must come up with 1.5 trillion debt reduction over 10 years.

What a freaking joke.  The government will agree to basically cut 150 billion a year on a 3.7 trillion dollar budget for 10 years.  Does anyone at all believe any of this?

Again, it doesn't matter about the reality.  But one thing is for sure, next year is an election year.  That means the Republicans and Democrats are going to be filling the airwaves AGAIN about budget, this time deadline November 23rd.

So before we look to the sky for how far the market will run, consider that the news will once again be financial topics, and being spun loudly for November 23rd.  The market hates uncertainty.

My bet?  I don't want to be long markets into November 25th, right after Thanksgiving.  Between the Christmas sales and newly passed budget cuts, I am not betting on a new market high.

Between now and then, Gold goes up, dollar goes down, markets climb or trade in a range.  I'll stick to gold, gold miners, and silver.
Good luck

UPDATE: 10-28-11 @ 8:50 am  Election worries drive deficit talks

Europe Celebrates Lawlessness

The fiscal problems in America and Europe have driven government sanctioned fraud globally.  In March 2009, with the global crisis hitting lows, the FASB changed accounting rules to allow banks to mark 'assets' at a valuation they determine, rather than what the asset is worth on the open market.  This was called mark to market accounting, instituted back in the Great Depression.

The idea is that assets have value, equivalent to what others are willing to pay for it.  For example, if I state my house is worth the amount I paid for it, but nobody today will buy for that price, then what people will pay for it today would be the 'mark to market' price.

Since then, banks across the world have enjoyed a great run, and why not? Their assets in accounting terms don't lose value.  Its a great gig.

Europe now proposes that Greece will be able to write down their bond debt by fifty percent AND this will not trigger a default on their debt.   The second part is key here.  If the debt write down is not termed a default, it cannot be an event that triggers legal action when defaults happen.

This to me rings of what I see in society often today, avoiding responsibility by changing the rules.  This will have ramifications that I believe will far outweigh the benefits in the years ahead.
How can anyone enter into financial agreements if accounting rules can change, if definitions like debt default are altered to suit the "other side of the tables" needs?

The answer is, if you act responsible with your money, you can't  You will avoid entering into such agreements in an industry that has a track record of avoiding adhering to the construct the agreement was based upon.

If the Greece plan comes to pass, the event will AVOID triggering the debt default agreements (like insurance) called Credit Default Swaps.  In the near term, this is a fantastic thing.  I have covered before how CDS coverage exceeds gobal GDP by multiple times.  If CDS is not triggered, is greatly reduces the change of a financial depression.  Thats the good news.

The bad news if money is not treated with respect, and does not have a rigid enforcement of law, the other result is currency collapse.

While I am not stating that a currency collapse will happen, I am stating there is no free ride for avoiding responsibility, there will be consequences.  For today, time to celebrate, markets will go up.  Watch gold and gold miners, I may buy more.

My Favorite quote during this event is
"The world is watching Europe and Germany; it is watching whether we are ready and able, in the hour of Europe's most serious crisis since the end of World War II, to take responsibility," Merkel told parliament.

The way I see it, above was a twist of words, below I have fixed it.

"The world is watching Europe and Germany; it is watching whether we are ready and able, in the hour of Europe's most serious crisis since the end of World War II, enforce responsibility," what Merkel should have told parliament.

European Union, the 20th Deadline to resolve is Wednesday

Wednesday's deadline for the Eurpean union to resolve their sovereign debt, after a string of deadlines for over a year to resolve, is now in focus this week for the markets.

I haven't commented much since I was so confident zero would get done, and I was right.
But this week, there may be a peep, I doubt final answer on the European crisis.   But we may actually get some foothold of the new reality out of Europe this week.

We could hear it Wednesday, but I suspect just one more kick the can into Friday for an announcement.
In any event, this is a crucial decision of Europe that will shape all of western countries next couple of years.   I just don't believe the right thing will be done.  Instead I expect more paper games to cover the crisis, until the crisis gets so big, no European country can avoid the vortex created.

It just boils down to take your medicine now, or wait until Europe is on the hospital operating room with a massive near fatal heart attack to see the outcome.

Greece, Spain, Portugal, Italy, Ireland

Greece, Spain, Portugal, Italy, Ireland are at risk of outright failure, unless Germany backs all their debt.  Time will tell.  Some nice video debate.  Nigel Farage is my European Parliament hero.

Federal 1 year bonds at 150 percent interest rate returns

Well, not US federal bonds.....

Here in America, a US bond gets near zero percent for a 1 year bond.  In Greece, you can buy a Greece 1 year debt bond and get 150% interest rate!

Imagine that, give Greece 1,000 bucks, and in a year, you will get 2,500 bucks back in euros!
So why invest anywhere else but Greece?

For one thing, you must have faith that the European Union will save Greece by paying for their debts.  And so far, Germany is having cold feet to pay for Greeks heavy debt load.  Next up of course will be Spain, Italy, and  eventually Ireland....again.

So if your the optimistic sort, it's a great time to buy Greek government bonds.
For those like myself, I'll take good old US bonds under 1% for now.

BTW, Greece offers us all a glimpse of a potential future for all western countries, if we don't start changing our behavior.....NOW.

Western Financial Collapse and the East

Nice quick summary of the world economics, and I agree with this man 100%.

Global Financial Meltdown In Two To Three Weeks

Not sure if the title of this post has any merit.  An adviser to the International Monetary Fund said it.  Does that give it more weight?  Remember, his focus is Europe, and I do agree Europe is in a old-school Great Depression, deflationary collapse.  And I do agree the next crisis is waaaaaay worse than 2008, and its going to happen in the next 12 months.    You decide if the video makes a compelling argument the next "3 weeks".

The video references Credit Default Swaps, which was the underpinning to a possible global collapse in 2008.  Here we are in 2011, with no transparency, and no significant improvement on unregulated CDS, which exceed total global GDP in liability.  Apparently there is only one way to fix this mess, and that is after a collapse.  We had 3 years to reform CDS, and we didn't.  WE will, when its forced.

My greatest short-coming in all of this is lack of understanding how people when faced with apparent obvious issues refuse to address them.  The European union I recognized over a year ago starting to fall apart, and no significant progress to address was done.  Same with CDS, this was an obvious issue back in 2008.

I hesitate to put timelines on such historic events, but I did quote it was time for this to begin in June 15th post "Three strikes, time for global economic implosion".

Europe heading for all out implosion, 2008 style

America led the world into the first major wave of what I think will be a decade long crisis, back in 2008.
In 2011/2012, it is looking like Europe leading the world down rabbit hole number two.

The European banking system looks much worse than America's.
The major advantage the US has, is the US printing press for new currency has not hit any significant limitation.

Europe however doesn't have the same luxury. The Euro is basically a currency PEG among all member nations.
The Euro can't just print trillions of dollars and drop it from helicopters like Ben Bernanke.

This difference will result in a very harsh, and nasty deflationary collapse in the European union.
I suspect with Europe going down, the world will follow just like the world did with America.

Unfortunately, all of this will continue to add to the strain to the global system.

Two American banks with 4.3T dollars are at a stunning 22x leverage to capital, a recipe for disaster.
Four European banks with 4.8T Euros are at 69x leverage, and without unlimited currency printing, a sure fire collapse is fast approaching.
I had thought this would be kicked into much later 2012, but the posts I keep reading is starting to sway me that we may not make it out of 2011 without fireworks.

Greece bonds, a great buy at 88% ROI for 1 year?

The US 1 year US treasury bonds pay 0.005%, yes, you read that correctly, essentially zero.

For baby boomers in search of fan-tastic rates of return, one has to look no further than Greece.  Greece 1 year bonds are now offering OVER 88% interest rates.

Basically a 1 year investment in a Greece 1 year bond, your ROI will far exceed any other investment offered in the world.  The currency, the Euro, is currently relatively strong compared to US dollars.  Germany and France keep throwing billions at Greece, Italy, Spain, Portugal, and any other country in the European union facing challenges in the bond market.

So if you have faith that the European union will NOT be dissolved in the next year, and the Euro value will be maintained, look no further buy Greek 1 year bonds.

I for one, do believe the European union is headed for a cataclysmic disruption, that will result in either a Euro fractional-zation or economic implosion by all its members.  I have no idea about timeline or depth that the debt defaults will come.

But quite obviously, people living IN Greece and Europe do not have faith that Greece will be around in a year as part of the euro.  For if they did, they would be buying 1 year Greek bonds and driving rates below 88%.

Now imagine, if you are a retiree in Greece, and you purchased long term fixed income assets, like US retirees are doing in droves right now, a year or two ago.

What would those long term fixed assets be worth, when the 1 year rate is 88%?  Answer is simple, a complete routing of your retirement savings locked in at a much lower lower rate.  Those retirees would be dumping longer term debt notes at huge losses just to "get out" of their lower rate lock in.

Greece serves as an example of what retirees are facing in the USA.  High risk investments for mediocre returns, or near zero rates (US 30 year at 3.75%).  For those locking in a great 3.75% rate for 30 years, the warning of unseen dangers can be illustrated by Greek bonds.

In honor of this post, I added a US Government bond rate link on the right, reflecting current bond rates for future reference.

NOTE: I don't believe US debt will have significant rate issues probably until 2013-2020?  (I suspect 2014).

A small glimmer of hope appears

I have very mild optimism that maybe the politicians are starting to get it. I read an article from England, and I quote:

The Liberal Democrat minister said: "It is disingenuous in the extreme to use the current context to argue against reform."

"Banks are in a way trying to create a panic around something which they know has got to happen."

"The governor of the Bank of England and many other people have been arguing that we have to deal with the too-big-to-fail problem."

"We can't have big global banks with balance sheets bigger than British GDP underwritten by the taxpayer; this can't go on and it has got to be dealt with."

Sir, you do and America does, when you include the CDS liabilities that can trigger a cascade failure. That is what you get when you allow such agreements with zero transparency and minimal guidelines from the public.

I have minimal hope since a chorus of people are needed, not just a couple of politicians to bring the underlying problems to a head.

I'll eagerly await other bloggers to dissect if the changes in Britain are real, or another toothless paper tiger.