Word that Portugal may need as much as $99-billion in bailout dough doesn’t seem to have crashed the financial markets. Neither has the insinuation that growth in Germany could hurt the rest of the EU.
While we wait for the Michigan sentiment numbers and the GDP this morning, there’s a good case to be made that economic fundamentals no longer matter.
Why?
Well, the governments of the world seem intent on printing up as much of whatever they print for money to keep things rolling. Not that anyone has ever tried (successfully) to do a whole world inflation before, so this is likely to be wildly entertaining.
In fact, I would not be surprised, as a result to see $1,450 gold and $40 silver over the next month, or less… days maybe. The precious metals seem to be taking off, along with other commodities like food and energy.
For this morning, the International Business Times was reporting that oil was “…stable near $10-5.50 a barrel…” and elsewhere in the financial press, we read questions like “Will Central Banks Accommodate the Oil Price Shock?”
Not to take other ideas to task, but let’s be real here for a sec: Of course they will accommodate! They have no choice.,
Not like that’s not obvious - for as my friend Gonzalo Lira mentioned in a note yesterday:
“Hey George,
Here’s a new post discussing the likely event of QE-three—and the alternatives:
The subtitle says it all: “(or, “Is That Your Retirement Account You’re Holding On To So Tightly? Or Are You Just Happy To See Me?” Said The Man From The Government)”
I discuss how once QE-2 ends, the Federal government is out of options—nobody outside the US has the stomach or cash to buy +$75 billion in Treasuries a month.
So therefore, it is either more QE—or a drastic solution, like confiscating retirement accounts and forcibly converting those assets into Treasury bonds, like they did in Argentina.
Scary stuff!”
Well, I dumped by short position yesterday, on the theory that now that we’ve passed the 12,100 ‘line in the sand’ there just may be more upside to the market, yet.
Not that I am swayed to the ideal of a perpetual bull market…if I was, I’d have done like my friend Howard who loaded up on close in options designed to make money in a major short-term super rally.
A review of where I’ve made the most money in my life, comes down to the stark realization that while I did dandy in the Crash of ’87 being on the short side of things, the rest of the time my major gains have been on the bullish side of things like oil, wheat, and oh yeah, gold from $273 and silver from $7.
I’m a slow learner, it seems – and while I think there’d be hell to pay for any kind of retirement account hijacking by the government – we’re in the kind of economic climate where the main investor mantra must be – more than ever:
TRUST NO ONE.
Not the Fed to stay out of equities markets, directly or indirectly, nor to just maintain the purchasing power of dollars; nor to manage economic policy, which back in the day was not the function of a bank. Nor can we trust many elected officials who can’t keep their election promises, be it national office from top down, and not local government which seems incapable of adjusting their own wages and budgets to reflect stable to decline property taxes.
Back when I was a young tiger of a newscaster (long, long ago) I became cynical about voting, seeing up close and personal how the powerful and the rich spread money around to favor policies which most favored their interests which they wrapped up as “good public policy” but which upon inspection was usually a self-interested lie. Shocker, huh?
Lammert’s Next Swan
Still, if we get a good run-up in the market today, I may re-enter shorts just to see what happens next week. Clif’s ‘hot period’ is upon us from today over the weekend into early next week, and The Fractal Economist, Gary Lammert sees fractal trouble ahead then, too:
“George, 30 March 2011. Never forget the chief benefactors of the central banks’ collective push on the string: the incipiently bailed out trading houses with their 144 billion in politician bought, legally tax sheltered bonuses, the system’s bond holding super rich, and the speculators. Because the trading houses are very savvy regarding asset valuation saturation curves with their computerized programs always and instantaneously on the trading keys, during the historical asset valuation collapse, the trading houses will make out even beyond the true bandits they are. Up or down it doesn’t matter; in fact; faster down, much much greater profit. There is no sheriff in town for these elite. They profit without labor from the monetary system they helped establish in 1913 and the trading system whose derivative valuations are publicized everyday, now linearly equated to America’s well being..
The central banks’ attempts to stem the tide of deflationary collapse are reaching a conclusion. The albino black swan event is predicted for 29-30 March 2011. The timing is exactly proportional to the fractal pattern of the 6 May 2010 collapse. Purchases of new US housing plummeted in February reflective of housing market saturation, paucity of new jobs and wages, relative over valuation of housing value relative to new job growth and intermediate term job demand, and overhanging debt of the recently graduated and citizens nearly everywhere collectively underwater. Portugal and Spain are beyond hope and beyond the final yard of push string the European central bank can imagine. This is the true deflationary nonlinear economic reality – not the historically and linearly overvalued, overpurchased, completely saturated equity and commodity asset valuation saturation curves at the synchronized second fractal break point.
All of which leaves me with one of the most perplexing investment problems of all: On the one hand, we’re in Clif’s window and Lammert’s got a fractal bead on next week. So, do I throw a few grand into short term option positions which could pay off (massively, like 4-10 to one), or do I use common sense and not bet against the house?
The first ‘trust’ question of the morning is do I trust reasonable researchers with no economic axe to grind, or The House which has been working over my wallet here lately? Lay on a straddle or strangle here? Hmmm…
Troubles of Japan
As we are getting hints of the ‘ill winds’ from the Japan accident circling the globe, showing up in Iceland, for example, a check of the www.radiationnetwork.com site reveals that you will still need your headlights on to drive at night in the US.
The situation in Japan is incrementally worse, though with a dangerous breach now suspected and reports of workers getting burned skin from standing in radioactive water without boots and such – hardly in keeping with the downplayed low risks which we’ve previously be reassured about.
The Japanese stock market was up 1 percent overnight and it was ‘all green’ when I looked at Europe this morning.
Now we get to the trust question about Japan. I’m not the brightest economic bulb in the house, for sure, but I was struck by the Yes-Dollar chart on the Fed’s web site this morning:
Since one of our regular readers is a well-respected teaching PhD type who has lots of other initials after his name and teaches 600-level (and up) business classes, perhaps I could lay off the question as a ‘quickie report’ for grad students to submit for critiques?
The question which I’d like explained in 600-words or less is this: “How can a country which has just had its ass kicked with multiple nuclear accidents, a major infrastructure wrecking tsunami and damaged supply chains, have its currency value continue to increase in the face of such overwhelming damage?”
The simple answer is probably either a) “Someone’s lying about sh*t or b) the markets are really dumber than we think and they will catch on next week and that’ll be Lammert’s albino black swan… but some details and supporting decision matrices, please to explain why your answer should be trusted.
You notice that the Japanese PM is calling the situation in country “grave”? Poor choice of words…or, does he know more than he’s letting on and doesn’t this get us back to that whole trust discussion?
But it’s all OK – the Bernank has promised to speak out more and explain policy better. Wait – haven’t I heard that somewhere before….oh yeah, where are those bank bailout amounts Bloomberg won the right to in court?
Banks & Banksters Dept.
So with Portugal banko’ed and Japan still in woods, what do you suppose is going on in the background with major banks and, in particular, with the government’s FDIC Insurance operation? How about a quickie summary from their CFO?
The attached report highlights the Corporation’s financial activities and results for the period ending December 31, 2010.
•During the fourth quarter of 2010, the Deposit Insurance Fund (DIF) balance increased by $657 million to negative $7.4 billion. This increase was primarily due to a $3.5 billion increase in assessments earned, offset by a $2.4 billion increase in provision for insurance losses and a $452 million increase in operating expenses.
•During the fourth quarter of 2010, the FDIC was named receiver for 30 failed institutions. The combined assets at inception for these institutions totaled approximately $8.9 billion with a total estimated loss of $2.1 billion. The corporate cash outlay during the fourth quarter for these failures was approximately $2.2 billion.
•Year-to-date through December 31, 2010, Corporate Operating Budget expenditures were below budget by 14 percent ($567.9 million). This variance was primarily the result of lower spending for contractual services and vacancies in budgeted positions in both the Receivership Funding and the Ongoing Operations components.
Say, you don’t think that FDIC has embarked on the same kind of trajectory which hit the Social Security “Trust” Fund, do you?
Doggone it! There’s that ‘trust’ word again.
Print Me!
You saw, of course, that the print rate on M1 at the Fed is 11.3% annualized over the most recent three-month period and M2 is running 4.7 percent annualized?
So, how does this compare with the increase in goods & services made by our country here in the good ‘ol USA? Hand me this morning’s press release from the Bureau of Economic Analysis, wouldja?
Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 3.1 percent in the fourth quarter of 2010, (that is, from the third quarter to the fourth quarter), according to the “third” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.6 percent.
The GDP estimate released today is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 2.8 percent (see “Revisions” on page 3).
The increase in real GDP in the fourth quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, and nonresidential fixed investment that were partly offset by negative contributions from private inventory investment and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.
So, if the GDP is going up 3.1% and the money printing is going up 11.3% annualized at M1, does that mean that Jas Jain, Lammert, and my other steely-eyed deflationists are right and that deflation is still here at 3.1% minus 11.3 percent) at 8.2%?
Or, is another way of thinking about it to say if food is going up at realistically at least 5% and M1 is going up 11.3% (M1) that inflation is only 6.3%?
Does that mean its good that food is going up because it offsets incipient inflation? And is that why they’re bombing Libya to keep inflation stoked so deflation doesn’t crash the system? Pinch me – ViseGrips, please.
GlobalRev Notes
Israel is about to deploy a new anti-missile system.
US officials are talking about regime change in Yemen and now Syria which is – IMHO – not a good thing, Why? Seems to me that Syria (and let’s not forget Iran) could cobble up a crisis and get into an immediate shooting war with Israel, which could consolidate domestic power…
Or, is that the plan????
Better Dental
You see where a court in Oregon has ruled that teeth are not considered dangerous weapons in a fight.
No word on tongues…which by my estimate are involved in at least 80% of human-human conflict.
Quake Watch
We’ve been down that path plenty already this week....so go check out the latest at the USGS site here. We’ll post an update when/if it becomes obvious…
(more after this)
