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.

Nigel Farage and the Fall of Europe

I have posted on Nigel Farage before, a shrewd politician who speaks directly on the weakness of European Financial positions.

This interview is a good one on Nigel.  My only hesitation with Mr. Farage is I am unsure of what his long term objectives are.  The stereo typical politician panders to the fundraisers, explaining why Nigel stands out so much.  A good watch none the less.  at 25 minutes in, a good commentary from Jamie Diamond and purchase of Bear Sterns with Government encouragement.

In Europe news, Greece unemployment 25% and climbing, French Economy taking a hard turn down, Spanish bonds being dumped abroad, and European union secession support gains in Belgium.

Market Musings

A week ago I posted "Getting out of the Market", over the next couple of days the market went higher after I sold, SPX was about 1450 at the open, and  the market closed on Thursday and Friday at about 1460, with intra-day high at about 1470.  Today Market closed at about 1432.

My goal is to stay out of the market until SPX hits above 1557, or pulls back to 1250 and I re-evaluate.
Of course, any major news can change my opinion.

Gary of Smart Money Tracker is calling for new highs, passing SPX 1557, click here to read.
Anything is possible.

Good luck.

Makers

I am going to deviate from the theme of this blog, and start covering Makers and financial news.
Why? Because I believe Making is a key role of America for the next 100 years.

America is a story of making, since its founding.  America Maked and the world taked.
Since Reagan with trade agreements favoring China and the world, America has reduced making substantially.

The new Making revolution I am witnessing is the start of the rebirth, not just of America, but of western society.   As it grows it will change society view of the order of things.  It will also bring investment opportunities the likes of Microsoft and Apple to us.  The fun will be spotting the biggest winners and investing.   For more on making click label Maker on bottom of any article or here.

My friend Bob sent me a link on a nifty video of a Heli-copter-thingie that someone made.
I highly recommend full screen, in a quiet room, watch and enjoy.

Heli showreel late summer 2012 from Esben Nielsen on Vimeo.

Jim Chanos and China Economics

This video is a few weeks old, but great to watch.
Jim Chanos talks frankly about China and how their miracle growth isn't there.

I recommend a watch, click here.

Jim Crammer spars with Chanos on china

Credit Card Cash Back

This is a follow up to post "Saving Money With Credit Cards".  See also "Paying off Credit Cards"

Since that post, I acquired the primary three cards mentioned in the post, and since then flushed out details.
To help you calculate your annual savings, I have put together an Google Spreadsheet, accessible below.

Short version is by getting these three credit cards, you can maximize your cash back from all household spending.   Your spending habits may reflect different categories selected by the USBank card, which offers 12 different 5% categories for cash back.  Fidelity Investments card does require an account to recieve 2% back on all purchases, which may be worth while depending on your spending habits.   A typical American Express or other point systems work out to 1/2% to 1% cash back, excluding travel rewards.

For most families, the 6% Grocery and 3% gas cash back is well worth getting American Express Blue Preferred card. (Max $6000 per year for grocery)
NOTE: if you get two cards, one for him different account for her, can get back on 12,000 per year for groceries!

To access the sheet, click on the image below or the link here.
*WARNING* If someone else is modifying the sheet at same time as you, you will see each other making changes.  To get a private copy select "File" then "Download as" and pick EXCEL. Or come back later when the sheet is not in use.  Look in upper right corner to see if others are viewing the sheet.

I used stickers to mark the cards to make it easier to follow.  You can access the template I used for Avery Template 5162 by clicking here.  It will look messed up, you need to download the file. Click "File" then choose Download.

I researched American Express points, various Citibank cards, and other rewards.  Excluding travel rewards, the cards above are the best rewards I could find.  If you find better, please click the word comments below to add to this post.

After searching the web, it seems cash back is considered a discount, not income.  Only tax implication is if you spend 100 bucks, you can write off 98 bucks (2% Cash Back) as an expense.

Alternately, you can SELL your points for cash, at a 'grey' market vendor I had no issues with, www.rewards2cash.com.  If you sell your points, buy airfare on sale and get points it usually works out better.

UPDATE: I booked flights with Amex points.  The airfare was 841 bucks.  The points to pay for it was 84100 points.  Since each 1 dollar gives 1 point, that works out exactly 1% payback.  Therefore best ROI is to get cards above and simply pay for airfare from cash back, and as bonus get additional 2% off the airfare itself.   It is possible to get special trips for better ROI if shopping offerings.

Manufacturing Revolution Revisited

This past weekend I went to MakerFaire in NYC.  This is related to the post I did titled American Manufacturing Revolution.  The phrase Maker in this context refers to people who...make things.  As an engineer, I focus on 3d printers, Arduino, Rasberry Pi, Robotics, and manufacturing machines like laser cutters.   However Maker can refer to anyone who makes including artists, musicians, foodies, etc.

I linked to various terms above if unfamiliar with terms.   Seeing the capabilities of the 3d printers, the influence of Arduinos, and robot progress, I am very convinced we are back in the IBM PC days of 1981 for this new technological revolution.  I believe 3d printers and other related tech are moving towards Moores law, where we will start seeing great progress in capability every 18 months.

It is not out of the question that in 16 years, we will have a sort of Star-Trek machine that can create anything we want made of metal and plastic, even simple electronics.  30 years, print your own cell phone.

Like any new trend, the gains are greatest earlier relative to the previous tech level.

So I bring you below videos from Makerfaire.  As for investing, well...I messed up on that one.  When I posted the American Manufacturing Revolution post in Dec 2011, if I immediately bought 3d printer stocks, I would have done fan-tastic.  Not to say its too late, but I don't want to buy in earnest unless I see a fire sale after such a quick rise.  I may buy a little of each for now. (100 shares)
Stocks to look at: ssys , ddd, ARCM (Swedish)
More interesting is 3d printing organs...yes, you read that right.  ONVO , (TOO SPECULATIVE!)
Makerbot is NOT yet public, but I believe they are moving in that direction.  They closed sourced their latest printer.

Videos!

Presidential Debate #1

I enjoyed watching the presidential debate tonight.  Romney left with a much better impression than I started with.

However both candidates lied heavily tonight.  I am amazed that Romney didn't asked on anything Obama said he would do....why didn't he try last week, last year?

Why do I say both lie?  Balance budgets but cut nothing that drives 90% of the costs....the magical 10% left will reduce 33% of the government spending.....right.

For the first time in my life, I like no candidates.  None.   Maybe thats a sign I have matured to an adult finally.   Anyway, worth a watch.  Romney got his ass handed to him in past weeks, now the media will hype the comeback, yawn, same thing each election.

Economic Outlook from CEOs, Bernanke, and Beyond

Thanks for Mish for his post US CEOs Sharply Reduce Expectations for Economic Outlook, Hiring; Third Largest Plunge in 6-Month Expectations in History; Reflections On "Uncertainty".

The survey hasn't seen this outlook level since 2009, inferring a slowdown is upon us.

Ben Bernanke must have read my post on Monday.  Mish reports Bernanke Begs Congress to Address "Fiscal Cliff", Pledges to Hold Interest Rates Near Zero Through Mid-2015 Even If Economy Picks Up
Which is exactly what I posted on Monday, that the fiscal cliff is going to be a political showdown at the expense of US citizens and the world.  Mr. Bernanke not only promised to purchase 40 Billion per month indefinitely  but keep low interest rates through 2015.  Once again, I ask you, what else can the fed do to prop up inflated asset prices?  There is always more, but only if there is a situation that justifies taking more extreme measures.

Looks like Austerity is the fad in Europe, and France has joined Greece, Spain, Italy, Portugal and others in cutting back spending.  As governments around the world grow more conservative in spending, is that a economic boom or would deflation likely follow.....
Mish reports Austerity Programs Hit France; Marchers Demand Vote on Treaty; Hollande Reneges on Campaign Promise

To add fuel to the Europe fire, Mish reports Concerns Mount that ECB Bond-Buying Program Is Illegal; Concerns? What Concerns?.   If the ECB was forced to stop bond buying, even for a few months, it would be devastating to prices.

The US Federal Debt is now at over 16 Trillion dollars.   The US GDP is about 16 Trillion dollars.  Congratulations USA, we now owe as much as the entire US Generates in 1 year!.  At this point the debt should never be paid back, not that anyone believes it will.  The real issue is not actually paying back, but the interest alone today every citizen owes the US is 12K and counting.  The interest will strangle the US budget and economy in the years ahead.

What we may be facing in the years ahead is not an Arab Spring, but a World Spring, as the central banks perversion of risk pricing, asset inflation, and capitalism distortions create more acute pain.  2013 is looking to be a real fun year, and at some point I'll do gold and gold miners again.

Getting out of the Market

Update: see post Market Musings
Monday AM update: Gold spiking up VERY fast, same with Oil, I am sticking with my plan below
I have given quote some thought about the market as of recent.
I have decided to "get out of dodge" for now, the reasons.

1. I waffled quite a bit the last week or so.  Such waffling usually means I am fighting fear and greed, and greed is winning.  Usually a bad thing.
2. Gary of Smart money tracker is also waffling.  
3. The Federal Reserve bank did blow its big announcement, buying 40 billion EVERY month indefinitely of US troubled mortgages from banks.  Not sure how they can top that one in the near future.  And to top it, I assume something bad will happen first.
4. If Obama wins, the republicans may make Obama's life difficult when tax increases occur in January.  I do not like the current democrats OR republicans.  All they have to do is NOT play nice with dems and allow taxes to increase in January, as it is set now.  That should really put the nail on any optimism.
5. Miners etf went from 40 bucks to 54 bucks in couple of months or so.  30% gain when 30 year bonds pay 3%...lets not get too greedy.
6. I will eat my hat, and turn around when the market hits a mere 100 points higher on the S&P 500 from recent high of 1447 to 1557, topping the old high back in 2007.  I can miss those 100 points if I am wrong, but rather miss losses of 100's of points if we decline.  Re-valuate at 1250 or so.
7. I said to sell on any strength last week, and frankly, if I had done that it would have been perfect timing.  Best to get out of dodge before more damage is done.

So there ya have it.  I am dumping almost across the board.  irony is I'll probably keep Facebook, Groupon, and Zenga from the post a while back, they got soooo beat up, eh, they may buck.

I will keep Tiny core positions.  I'll sit on my hands until above 1557 or radical news comes out.

Look at the chart below, really, why hold for 100 more up? I'll rebuy then when proven wrong.

Influences are across the board, including John, Slope of Hope (click, nice vid), Gary, and reality (click).

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.

Little evidence of structural change in recent years

I see little evidence of substantial structural change in recent years is the quote of the day from Ben Bernanke.

All Ben had to do was read my blog back from 2008 and he could have learned that this would be the outcome.  Heck, just look at Japan's last 20 years.  Point is, pretty sure he KNEW back in 2008 that all the money games would not return to the good old days.

But what matters for this blog is what does Ben's speech mean for the markets?   Gary of the Smart Money tracker says start buying again (in low quantities) the miners.

I am not so sure.  Today's talk was cheap from Ben, nothing was done materially.   Buying TINY to get a toe hold if this leads to a longer rally is fine, but I'd dare not go in deep.  There is a 3 day weekend ahead, and who knows what may get announced at the close. 

Best of luck

Short term, out of miners

Miners went up 20% in a month.  If holding for years, can still keep holding.
For others trying to "outsmart" the market, a sell now, or if/when GDX crosses below 46.5.

Up 20% in a month is too good to be true. In a market that pays 3% interest on 30 year federal bonds, best to take profits and buy back later.

This counters my "time to start buying" miners back in July, near term.  For a true professional, subscribe to Gary of Smart Money Tracker.

Stock market history bad guide for future returns

A good interview by Chris Martenson about the current marketplace for investing, part of his podcast series (click).
I completely disagree with any mention of a gold money standard, but excluding that item, the rest of the analysis is spot on.

A great watch for everyone, and a shorter, easier view than the long video series he has created. (A MUST watch)

Housing Bottom in sight?

Between baby boomers selling their houses (during retirement or death), the 20 year olds having 100K student loans and poor job options, I can't see a housing rally in the next 20 years.

But the doom and gloom death spiral started with subprime loans may have an end in sight.
Back in December 2008, I posted a graph pontificating the worst of the housing may end by 2012, in post titled "Mortgage Defaults just starting".

The graph showed all the mortgage resets occurring over the next 4 years (at that time).
Fast forward to today, and the various bubble loans should be passing.

Banks still have millions of homes in shadow inventory, with millions more of homes in default.  So I wouldn't call a house rebound anytime soon.   However, the massive housing mortgage reset backlog may be slowing down.

The New York Times posted article "Signs of Revival, Slight but Sure, for Home Sales".

Quote:
A number of factors have helped nudge prices higher, including shrinking inventory — particularly on the more affordable end of the market. There is about a six-month supply of homes, according to the Realtors’ group, down from more than nine months last summer.

So there ya have it.  What NYT did not post is the graph I posted back in 2008 showing that the housing would hit bottom around 2012 for mortgage resets.  NYT doesn't provide the depth in analysis to explain why housing is bottoming, just the surface of the here and now.  I'll take any good news.

With housing bleeding slowing down, it will be interesting if the US economy can get a toe hold of recovery.

Most Valuable Company in History

Congrats to Apple corporation and to Apple stock holders.  Today Apple has become the most valuable corporation in history.  As of Monday morning the 20th, Apple Market cap was 621 billion dollars, with each share reaching 664.65 per share.

The total net worth of Merck, Intel, Anheuser-Busch, Toyota, and Verizon combined is about equal to  Apple.

For a sharp contrast, about two months of US government spending is equal to Apple's valuation.

Market Patterns work until they dont

Back on August 9th, I posted about a Market Pattern.  The indication was market was likely to swing lower before resuming higher.  Instead the market just simply went higher.

It's very tough call on what is best from here.  I am still skittish to be heavy into gold miners, for the market has gone up nicely, and I am expecting a pullback.

But in bull markets sometimes the pullback doesn't happen.  Needless to say if GDX and GDXJ make a nice  pull back to 5% to 10% lower from current, I'll be adding more.

Then again, I may write later in the week that the train seems to keep on going and I'll buy more in anyway.
For those holding long term, just add over time and average costs.

I wont bother with charts etc, today.  Maybe after Monday's action.

Stock Market worst in 60 years?

John Bogle, the founder of Vanguard, had some interesting things to say in the New York Times article "A Mutual Fund Master, Too Worried to Rest"


“It’s urgent that people wake up,” he says. Why? This is the worst time for investors that he has ever seen — and after more than 60 years in the business, that’s saying a lot.
Start with the economy, the ultimate source of long-term stock market returns. “The economy has clouds hovering over it,” Mr. Bogle says. “And the financial system has been damaged. The risk of a black-swan event — of something unlikely but apocalyptic — is small, but it’s real.”
“Wise investors won’t try to outsmart the market,” he says. “They’ll buy index funds for the long term, and they’ll diversify.

Read the full article by clicking here

John, my attempt at the wake up is this blog and my Financial Ground Zero series.
At this point, not sure what good waking up does....and do what?
I agree with John one one thing, back to basics.

Social Media Stocks

Today I bought some stock in Facebook, Zynga, and Groupon.
It is a risky play, all have questionable business plans to increase profits.

All have been recently brutalized by the market, and FB and ZNGA have seemingly stopped the stock freefall.  Facebook insider selling can begin August 16th, quite likely the end of the selling is soon.  (Thanks greg)

Below is their charts.
I do not recommend any as a buy and 10 year hold, more like buy and think every week how crazy or genius is it to own.  These stocks have a few things going for them, Social networking is here to stay and they have hordes of cash.  I see social network transforming in the decades to come.  With their positioning and cash, surprises to the upside are not unreasonable.

Groupon by far is the biggest risk, but also most to get reward if they can do ANYTHING positive!

Mish on Inflation, Deflation, and the Economy

Good watch of interview of Mish, one of my favorite economic bloggers.

Saving Money with Credit Cards

UPDATE: Please see new Post "Credit Card Cash Back"
For readers that have the discipline to pay off credit cards in full each month, read on!

I was doing some research on credit cards, and ways to save money on web site called CreditCardForum.com.

For people who have American Express and pay for "mileage rewards", the American Express EveryDay card right now gives you $100 back after charging $500.   Pay for premium annual fee of $75 bucks, and get:

6% back on all groceries (Max 6K per year)
3% back on all gas and about dozen department stores (sears, jcpenny, macys, bloomingdales, lord & taylor, neiman marcus)
1% back on all else

For those too cheap to pay the $75, get 3% groceries, and 2% gas.  The extra % pays for itself for most households.

Next up is US Bank Credit card, with No Annual fee, you get (some vendors may have restrictions):
5% back on utilities!
5% back on fast food! (or restaurants)
2% back on drug stores

You can pick different categories than I did above.  I did so to compliment the Amex card above.
With the Amex credit card, there is a synergy for also choosing Amex card for other purchases and travel.

Fidelity American Express card has no annual fee (huge plus!) and pays 2% on everything cash back. Be sure to sign up for full autopay at autopay.fiacardservices.com

So there you have it, with the 3 cards above, you can get:
6% Groceries, 5% Utilities, 5% fast food , 3% Gas, 3% department stores, 2% on all else (Fidelity Amex)  is as good as you can get.  But there is no miles on the American Express credit cards.
According to this web site, buy GIFT CARDS from supermarket for other stores (such as Amazon.com) and get extra 6% off!

For those very adventurous, you can pump your Mortgage, Car Payments, Student Loan, and other reoccurring bills that normally don't accept credit cards through ChargeSmart.com.  But be careful of extra fees that may apply.  Make sure your credit card gives 2% or more back on such charges, otherwise I doubt it works for your favor.

Extra Benefits for Frequent Travlers
For those with moderate travel, the Starwood American Express.
Low mileage for rooms, free upgrades at Starwood hotels, and ability to transfer points to 30 different Airlines at a 1 to 1 rate all for $65 per year. Pretty good.

If you travel quite a bit, Platinum or Gold American Express may be your card to choose.  Gold American express offers  3x points on airfare, 2x points on gas, 2x points on groceries, 1x on everything else, a steep $175 annual fee, ouch!

Market Pattern

Recently there has been pattern of 5 days up, couple days down, then back up 5 days.
Expect that market may retreat a bit soon before resuming the up.

Gary of Smart Money tracker has additional comments on cycles, etc.
I am simply looking at the chart below, 5 days up, few days down, repeat.   since the down could at any time turn into a fireburn sell off, best to lighten up some when up.

I did not sell all positions, just lightened some today, and hopefully decent price in the AM tomorrow.

Good luck

Solar stock FSLR moving

Back on June 27th I posted "Solar, buy low, sell high".

Back then, FSLR was in the 15 dollar range.
Over the last few days FSLR has been moving at a pretty good clip.
Over the LONG haul, the ETF TAN (solar ETF) I still think is a no brainer.
And FSLR was at one time at 300 a share, so even at 21, maybe not expensive.
However, it would be nice to buy on a pullback, 14 to 21 is pretty big % in such a short time.

TAN hasn't recovered fully to the 27th price of 17.5

Chart on FSLR

Gold Miners looking good. Overall market higher?

On July 27th, posted a view on Gold miners going higher, waiting for short term trend confirmation.
In the short term, gold miners have confirmed chart wise looking good.

But so is the overall market.  In the near term, trend has broken higher, not lower.
And that is a setup for new highs in the market, which seems almost unbelievable considering the economic outlook of late.

But I think fundamentals relating to the market valuation is now in question.  This time its different :)
All kidding aside, from the charts, looking higher.

I'll be adding my own personal investing more into ETF's GDX, GDXJ, GLD, SLV, and OIH.
Food and natural gas has also been doing well. (DBA and UNG)

To the charts!

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.

Big Week Ahead in News

This week the Federal Reserve Board will announce policy changes (if any) in response to the US economic activity.   Most believe they will not announce any major changes.  The economy has not faltered enough to justify action. (intervention)

The European Union Central Bank announcing their own plans Thursday.  There is where the action will likely be.  It is widely recognized that the European union is having severe issues with certain members.  The ECB has demonstrated the worst attributes of communal leadership, that is lack of ability to make decisive decisions.  If history repeats lots of tough talk, zero actual material change in policy.  However, anything is possible.

And on Friday is the US employment report.  Historically this report can start a change in direction if the market is disappointed enough.

So there you have it.  I am in Gold miners as per my post Friday, and I have added positions.  But leaving room now to see what happens into next week.

Try number 2, Time to start buying gold miners

Back on September 1st, I posted know when to hold em, when to walk away.  It was a hard post to make, I have been soo bullish on the gold miners, its hard to make the call to get out.  I haven't been looking for a re-entry until recently.  The post Moving into Natural Resources on June 30th, was too early. I made that statement partly because Gary of SMT was bullish.  I am not blaming Gary, just when your getting close to a bottom your looking for others to confirm your own disposition. And bottoms are very hard to spot, it is pretty depressing to watch a ETF degrade for a year, trying to figure out when it will stop!

Below is a long term trend for GDX, Gold miner ETF.  You can clearly see that we may have formed a bottom after 1 year of losses.   buying here with a stop loss of 39 should keep risk low, with high potential profit.  A bounce up 48 bucks, hit only a few weeks ago, is definitely possible.  Getting in early helps psychologically later to add more if GDX breaks above 49.

The second chart shows GDX in the last few months how fast it has depreciated.  Also shows the recent down trend has been broken, while the longer down trend in the first chart has not.

So once again, I am mildly bullish and addition positions.  I'll be giddy when GDX closes ABOVE the longer term trend line in the first chart, with a pop to 49 seems very likely.  The next question will be can GDX close above 49.

Other plays are GDXJ (Junior miners), GLD (gold), and SLV (Silver).  Other resources are Oil companies (OIH), and food (DBA, RJA).  However precious metals does tend to operate on its own drum beat at times.  It is possible, although not highly likely, that gold miners rally in face of other resources falling.  I posted on 27th Commodity markets - is the bull back,  why overall I like commodities

The macro picture is still pretty grim as I posted in Economics Degrading, whats up with Oil?
This is another facter that dampens my excitement for gold miners.  But bottoms are formed when everything looks bad, not when everything looks perfect.  So that grim post, on July 22nd, aligns very well with GDX bottom on the second chart.  A good indicator that a bottom is there. (Economy looks grim, miners bottom).

So there ya have it, its up to you to see how giddy you get.  Stop loss of 39 should give enough room to not get accidentally pushed out for a "1 hour" dive of the ETF below 40.  Such games have been known to happen in the markets.

The question I have is if the USD resumes a rally above 84, can the miners hold their value or can they rise with it?  Also, can the USD rise for more than 1 year without a falling lower?  For the USD has been on an impressive March.

Back on July 22nd, 2011, I posted US Dollar headed for disaster.  The issues I called then still exist today.  The only thing that changed is the other countries are being beat up for their own issues.  Kinda like best house on a bad block.  I also quoted many times that USD crisis (not same as currency collapse) I expect in 2013-2017 range.  USD being THE global currency makes it impossible for anyone to guess if or when a crisis occurs.  That post was timed near the bottom for the USD for an entire year ahead, calling for USD to rise, not fall right then, right now or be prepared for worse conditions.  A gift of a good year was given to the USD.  Point is, how far can USD appreciate simply based on the rest of the world is also looking not great?  A USD top with elections ahead may be finally here for the next year or more. 

Thanks to John for the shout out email, and subsequently thanks to Gary for his insights on his blog.  I have been working long hours, and its been hard to keep the eye on this ball.

To the charts!

Economics Degrading, what is up with Oil?

This post shows links to other blog posts news items as a basis for this view presented.
I encourage readers to click on links for detail on each macro item presented.

Trouble in the Eurozone as more countries come under citizen pressures.

Spain and Italy are both experiencing protests and a growing call to leave the Euro.

China unemployment higher than their government is reporting, china trade plunging.
Japans trade surplus drops a whopping sixty three percent.
Australia  real estate market collapse has begun.  Their collapse may be similar to US sub-prime repeat.
Euro-zone PMI steep rate of contraction, Germany signals steep slow down.
There are hints of a global collapse in auto-sales has begun.
The Germany is entering a legal gridlock in moving to a true fiat currency or participating in larger bail outs.
Twenty six states in US in severe drought, killing massive amount of food crops, a probable signal to higher prices.  Farmers slaughter cows in droves to avoid food price increase.
Oil prices are going parabolic, increased input costs in a slowing economy does not bode well.
France has increased their top tax rate up to 75% federal tax rate, rich flee in droves.  With the rich gone, finally France can prosper?

All of the above and more point to a global economic slow down and we are in a global recession.
I for one believe that we are.  Food and Oil may continue to rally, but I wait to see what precious metals do.
In a deflationary collapse any rally could overnight turn into a full out collapse, so any longs are riskier than normal.

The main question is will global central banks plan a monetary assault in an attempt to stop the deflationary collapse.  Even that is not a solution, for our debt based government system as a built in time bomb called bonds.

As for Oil, it is disturbing AS The economy slows down, the price is leaping higher.  If it collapses shortly, then not a big deal, just a short term rally.  If it is rising due to politics, or supply, we may have a real issue at hand.

For now, its wait and see.

Waiting for Central Banks Reactions

There is pressure on all sides right now in the global economy. Europe is teetering on an economic deflationary event not seen since the Great Depression. In 2008, it was a deflationary event, but quite short lived compared to most. The US changing laws to stop valuating companies using Accounting standards since the great depression helped, as well as 1.5 trillion annual deficit spending.
Food prices, gas prices, and some other resources are not even close to their 2008 lows. US unemployment/under employment is at 8.5% to as high as 25% depending on what statistics you believe. US Federal bonds at near record interest rate lows. China experiencing a credit collapse, with Australia at minimum experiencing an economic cool down. There are many other signs such as manufacturing slowing, etc.
 Since 2008 NOTHING has been fixed. As a global society we pissed away 4 years, trillions in debt spending, as well as encouraged companies to be reckless and remain insolvent. So its back to the central banks, what is the response going to be? Watch another 2008 unfold? Or pre-emptive strike? If history is any tale, pre-emptive strike is a shoe in.
 But there is a fly in the ointment. Natural resource prices have not yet collapsed like they did in 2008. If the Central Banks come out guns a blazing with more free cash, it will cause resources to move UP from here. I won't call for skyrocket by any means. But a higher low between economic issues does not bode well for the next few years.
 So I remain mildy bullish resources, with a toe in the waters, waiting to hear the other shoe drop, a "new deal" of printing to further flame the global currency war.

Dollar Rising

The US dollar is rising today, which does NOT bode well for resources.
Just earlier in the week I was calling for resource bottom, mainly due to how badly the sector was beat up.  Then Gary got bullish, and I was already starting to get bullish, pushed me over the edge.
But looking at the chart below, it could be a snap back rally that fails next week, or what it looks like, the dollar is not rolling over.

When in doubt, caution is best.

I am going to LIGHTEN positions, but not exit.  I am taking down my bull/bear image for now.

But the US Dollar looking to continue to make new highs wont play well for resources.

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.