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04Jul

There is no economic recovery

Alex Economy, Finance, Stocks 0 comment

The economy has not been saved from disaster with zero percent interest rates, bank bailouts, stimulus or tax breaks.  In fact, some economists and market speculators have argued that these measures made the economic crisis much costlier and protracted its eventual resolution.  We are experiencing major asset deflation.  It’s spreading across just about every investment class, from real estate to stocks, higher yielding currencies, riskier bonds and most commodities.

Don’t believe the hype

The degree of naivety necessary for our policy makers at the Fed at at the congress to believe that creating more debt to solve a debt-based crisis is only exceeded by that which we as a population are engaged in to believe that BP is actually capable of cleaning up this spill or at this point even addressing the leaking well.

It’s necessary to look beyond the nonsense being reported through the mainstream news outlets and see the situation for what it really is:

  1. We have a tremendous amount of debt, close to 100% of GDP if you aren’t counting the outstanding liabilities of Fannie and Freddie, yet we’re continuing to spend more money borrowing against the future earnings of people who have not been born.
  2. Our banking system is grossly insolvent.  These companies have so many illiquid, worthless assets that are leveraged to the hilt that if they ever had to mark to any reasonable market valuation they would implode and bring down their counterparties.
  3. Unemployment is extremely high and the statistic is flawed because after someone stops receiving unemployment or if they are no longer looking for a job they are not counted.
  4. A lot of risk from the private sector has been transferred to our government and yet the private sector is still in terrible shape.
  5. The US has transformed from a industrial superpower to a consumption-oriented debt monster, which has, out of necessity transferred most of our industry overseas where cheaper labor, lower (if any) environmental standards and a dire lack of human rights prevail allowing products to be produced at an extreme discount.
  6. Our real estate market, about $20 trillion dollars in size, is continuing to experience a massive contraction.  The real loss of wealth has already been trillions and as that continues it will create significant losses in consumer spending, which accounts for 70% of the US economy.
  7. Housing numbers continue to disappoint, with May’s report being the worst in the statistic’s history.
  8. Small businesses, the largest engine of growth and hiring in the US have been largely ignored by the tax breaks and stimulus programs, causing massive layoffs and many companies shutting their doors.
  9. Let’s not forget that even FEMA acknowledges the BP disaster will cost trillions of dollars.  BP does not have trillions of dollars, so obviously that leaves us holding the bag.

The false recovery is over

After spending tens of trillions of dollars to save banks from themselves, record Wall Street bonuses, mergers that made banks a bigger risk than they ever were before and an incredible lobbying campaign to neuter Washington’s efforts to reign in the tail that wags the dog, we are seeing fractures in the supposed green shoots that were supposed to lead the way to a V-shaped recovery.

As we see deflationary pressures begin to take control of the markets once again, a new credit contraction looms.  One that again begins to wipe away asset value as a flight to safety resumes.  We’ve seen increasing strength in gold, US dollars and treasury bonds at the same time as an indication that a new panic is setting in.  Two year US treasury bonds set a new record low yield recently.

Derivatives are a ticking time bomb

The worldwide financial derivatives market is estimated at 600 trillion dollars, a mind boggling number (about ten times the world’s GDP). This should serve as a reminder of the funds required to keep this financial fraud going, a fraud that only sees the underlying real asset representing a fraction of this amount. What would the banksters in this derivatives game use to pay off their bets if things went sour?

If you guessed your hard earned money, then you are correct!  We’ve already seen it happen in the last few years and it’s prone to happen again.  If one were to attempt to coin a term for this it would be something along the lines of reverse Robin Hoodism, that is to say robbing from the poor to give to the rich.

Look towards Japan and Greece for answers

Japan is embroiled in a deflationary downward spiral triggered by a real estate crisis that occurred back in the 90s.  They never recovered because instead of acknowledging the problem and moving forward, their government and central bank did the opposite, allowing insolvent zombie banks to continue their existence, lowering interest rates and trying to outprint the amount of debt imploding.  Deja Vu?

Greece attempted to conceal a large amount of debt with the help of a familiar friend (or fiend if you prefer), Goldman Sachs.  It even worked long enough to get them in to the EU, but now that the problem has been exposed they have lost the confidence of their creditors.  Funny how creditors are the new masters and citizens are the new servants with governments merely acting as a proxy.  Debt peonage anyone?

U-turn necessary to avert cliff on the horizon

We must reverse course immediately before we drive in to disaster.  Reckless spending, corporate welfare, ineffective  stimulus and impotent economic policy are all forcing a void in our country’s future.  We are wasting time with measures that not only are completely ineffective, but they are creating a massive problem for all of us.

There is still time for us all to stand up and demand a fundamental change in direction.  Rather than spending, saving.  Instead of exporting jobs, keeping them at home.  Cut the demand for petroleum-based fuel by focusing more effort on domestic alternative energy sources.  Focus on restoring our natural resources and improving the environment rather than destroying it.  Stopping the de-industrialization of America and starting to compete again as a manufacturing superpower using renewable resources.  What we need is a vibrant, but sustainable economy that doesn’t experience the violent boom and bust cycles that promote poverty and currency value destruction.  It’s time to bring America back in to our hands.

09May

Brian Williams on David Letterman

Alex Business, Economy, Finance, Stocks 0 comment



08May

It’s time for a new and improved uptick rule

Alex Economy, Finance, Forex, Futures, Options, Stocks 0 comment

Since the SEC eliminated the uptick rule on July 6th, 2007 there has been a marked increase in volatility.  Of course other factors significantly contributed, but in all likelihood with the uptick rule in place, selling would have been more controlled and orderly.

Another Black Thursday

After the most recent Black Thursday on May 6th the market dipped almost 1,000 points because of what the exchanges claim were computer errors (and probably the bid disappearing because market makers were running scared), it’s time to look at reinstating the uptick rule.

Black Thursday resulted in many investors losing money, including retirements and pensions. Whether it was a computer event, human error or some combination of both the fact remains that a rule to prevent short selling without first an uptick in prices would have curbed losses.

History of the rule

The uptick rule was originally enacted in 1938 as a response to concentrated short selling.  It forbid short selling a stock unless there was first a positive tick in prices.

Short sellers today claim that the rule was largely symbolic and only affected a few exchanges.  They’re right, it was not broad enough and regulation did not keep up with the way markets changed.

A better rule needed

The new uptick rule should affect all US stock, options, forex and futures exchanges to ban short selling except on an uptick in prices.  This would, in effect, buffer investors and exchanges from the cataclysmic stock market losses that we saw on Black Thursday.

Another benefit is it would force the computerized programs to, by law, have protection mechanisms built in to prevent endless selling.

Regulators must regulate

Now that the carnage that’s only possible without more balance in the market has been witnessed, it’s time for regulators, like the SEC and CFTC, to stand up and enforce existing regulations more stringently and insist on new regulations, such as a new and improved uptick rule.

16Mar

An open letter to states delaying tax refunds

Alex Business, Economy, Finance 0 comment

It is not the right course of action for any governmental body to delay tax refunds to its citizens. These are payments made in good faith. If citizens overpaid they are entitled to a refund as soon as it is available, regardless of any fiscal disciplinary problem.

Many families are struggling due to the ongoing economic crisis and every single penny they can hang on to is incredibly important to their well being. I understand that many state governments are suffering from lower tax receipts, but to make your citizens suffer for a lack of foresight, bad investments or budget deficits is morally questionable at best.

We are all facing the same situation so let’s help each other come out of it stronger and leaner. It’s time to make some serious cuts and perhaps even consider raising taxes in certain areas. It may not be politically popular, but it sure is a lot more favorable than delaying the repayment of money that technically isn’t even yours.

14Mar

The staggering fraud that collapsed Lehman

Alex Economy, Finance, Stocks 0 comment



13Mar

It’s time to default on our debt to China

Alex Bonds, Economy, Finance 0 comment

Let’s face it, China is not our friend. They never have been. Their government regularly engages in military and industrial espionage against our interests. Hacking in to thousands of American companies, government installations and harvesting sensitive information for their benefit are not the acts of an ally. Neither is attempting to harm our people, interests at home and abroad as well as our economy.

The Chinese government is anxious to usurp US influence by using the bonds they own (about $1 trillion worth) to undermine US interests. In the past they’ve used bond purchases as a way to keep rates artificially low so they can exploit the consumption-oriented nature of our debt-ridden economy and now they’re threatening to use these bond sales as a tool to manipulate our government’s policies.

For example, the US sells arms to Taiwan and China sells bonds to “punish” our government. The Chinese government also reneged on energy derivatives contracts on behalf of their state-owned energy companies because the bets simply didn’t go their way. Are we really going to tolerate this childish economic warfare and these dishonest business practices?

I’m sure most people have read about the well publicised hacking of Google, but that was just the tip of a massive iceberg. China’s government has hacked in to countless Fortune 500 firms to steal valuable trade secrets and other intellectual property. They also gained access to sensitive US government communications and intelligence information.

It’s time that we show the Chinese government that we are not their ally any more than they are our ally. This dispute has gone on far too long and it has resulted in an economic catastrophe. We are losing jobs, wealth and our sovereignty is being eroded. And for what? So we can have children’s toys tainted with poison and poor quality consumer products? Why should we put up with this nonsense from a country that has nothing but ill intentions for our government and more importantly for our people?

America didn’t dig itself in to this recession alone. We had help and there is plenty of blame go to around the world. We are supposed to believe that China is helping us out of this mess, but China’s interests are only within making their communist regime more powerful and domineering in world affairs. Do we really want to see this goal come to fruition? China is not a world leader. They are more of a string pulling, manipulative bully.

The Chinese government censors the Internet trying to prevent its citizenry from communicating with each other or finding out the truth about past events like Tiananmen Square and the repeated massacres of the Tibetan people. They also monitor forums, e-mails and chat lines in real-time attempting to squelch any civil unrest with brutal force and often times indefinite detention or worse.

How can we put our trust in to a country that has absolutely no freedom? If you dare speak out against the government they’ll throw you in prison and you have a good chance of being executed, having your organs harvested for sale or being forced in to slave labor.

Their propaganda machine portrays the Chinese government as godlike and faultless. Nothing could be farther from the truth. Their government is a one party autocracy with no accountability or checks and balances against the corruption that is prevalent amongst government officials.

It’s time to ask yourself, is it truly worth sacrificing everything we believe in and stand for just to have lower interest rates? I don’t think so. Let’s show the Chinese government we mean business and tell them their actions against our interests have violated international law, constitute acts of aggression, if not war and we will retaliate by invalidating the debt that they own. In addition, let’s stop supporting this war against America by refusing to purchase Chinese made products. We must derail the money train to Beijing before its too late.

26Feb

Significant headwinds ahead for US economy

Alex Bonds, Business, Commodities, Economy, Finance, Forex, Metals, Stocks 0 comment

I feel we are facing significant headwinds moving forward because of the loose monetary policy of the Federal Reserve, the refusal to address the core problems in our financial system and the incredibly opaque derivatives market that has yet to be regulated or even cleared on open exchanges.

The root of the problem

To expand on the first point of loose monetary policy, from my own research I have gathered that the government has put at least $12T, possibly up to $30T worth of guarantees, backstops and other forms of insurance against the prospect of another meltdown. In addition the Federal Reserve has, in my opinion, illegally bailed out AIG through programs they are not authorized to participate in. These actions and other measures have transferred the risk of collapse from the private sector to the US government and to the Federal Reserve.

Interest rates remain below 1% in a range of 0.00% to 0.25%. Combine that with the infusion of US dollars the Federal Reserve has given to other central banks around the world and we have literally created a carry trade scenario. Not only are we repeating the mistakes of Japan, but we are going down a path where should a geopolitical event or other significant negative catalyst occur the repatriation of dollars could create a collapse across nearly every asset class.

Risk grows as stability wanes

This environment that has been created to engender a recovery is not only unsustainable, but it has created more risks than had existed beforehand:

#1 Should another market panic occur where AIG’s credit default swaps are due, the US Treasury and Federal Reserve must cough up the difference. This would lead to another series of bailouts and funneling cash to foreign and domestic banks at the tax payer’s expense on bets that never should have been made and were downright idiotic.

#2 Big banks are BIGGER now than before: JPM, BAC, WFC, USB and others are now larger and present a much more significant risk to the system should, say for example, one of their mark to make believe off balance sheet assets implode — potentially bringing down the entire world financial system, again.

#3 The stress tests were fraudulent and did not expose the off balance sheet asset liquidity vacuum these banks are suffering from. Papering over fraud never leads to a sustainable rebound.

#4 Tax receipts are down across the board – how can counties, cities, states and the Federal government hope to control deficit spending if they are not collecting as much in taxes? They can’t sell bonds forever, bringing me to my next point.

#5 Commercial real estate and corporate bonds are headed towards a potential implosion in the next few years, with major mall holders filing bankruptcy and many occupants of office and retail space vacating as they downsize. Corporations also must refinance their debtload which is ever growing while the global appetite for these bonds is diminishing.

#6 We in the United States are very seriously facing the risk of a sovereign debt default in the future. This prospect is made even more serious by continued bail outs, war spending, entitlements and other programs that are completely unsustainable with our country’s $14T debt burden.

#7 Such a sovereign debt default would lead to a currency collapse and that could engender either an environment of hyperinflation or heavy deflation — all depending on where the chips fall at the end of the day.

Inflation or deflation?

While speculators are now hedging for inflation and shorting the dollar in any way possible, there is another market we must pay close attention to. A market that significantly dwarfs the size of the commodities markets as a whole. That is the US Treasury Bond Market. Last I checked it was $33.5 trillion dollars. I find it interesting that gold is touching $1111.00 an ounce while 10 year bonds are at only 3.625% — who is wrong in this gigantic game of chicken?

Either the folks buying gold are insane to believe inflation is the bogeyman to fear or the much larger, much more influential and liquid bond market is crazy because they obviously fear deflation. Why else would a rational human being buy a bond at 3.625% that they must hold for 10 years? Such an instrument would be less than worthless in an inflationary environment.

First the principle value of the bond erodes as interest rates rise, and secondly the yield would not make up for the rate of inflation. So we are experiencing a financial conundrum right now. Either we are on the verge of a deflationary collapse or a hyperinflationary currency crisis. Which way we’re going to go has not yet been made clear to me because I feel the markets are being propped up, even manipulated.

The most dangerous bubble

Why would I pose such an idea? Let’s start with the P/E of the S&P 500 which is now well over 25 (and was at one point over 100). How can anyone feel that these stocks are reasonably valued with such an absurd P/E? Most of the decrease in P/E from over 100 to over 25 has been from companies downsizing, firing employees, hiding bad assets and not organic growth. In the current global macroeconomic environment there’s no feasible way earnings can catch up, so in my opinion we’re already in a bubble.

Bubbles of the past were not as dangerous because the US government never had such a large stake in the market. Now we’re talking about a situation where if the credit, bond, currency and/or stock markets implode, so does our sovereign debt and currency potentially.

Investing is now speculation

Investing in this environment is difficult at best. During the March panic I was a buyer in the high S&P 600s of just about any material, technology, financial and energy stock I could find, but once we got to the 900s and I saw P/Es jump beyond levels I felt were fair valuations I became a seller of my holdings. I also invested some in to silver, foreign currencies and other commodities during the March lows, but also have since taken a lot of those profits off the table.

We are in a very risky area for people to be entering the market. I don’t feel these lofty levels are sustainable nor do I think the valuations are rational. I don’t know when the rally will end, but I do know that any parabolic move usually ends very badly and any time there has been a carry trade in the history of money it has ended painfully for all the speculators who did not exit in time.

Another collapse coming?

In closing I will say that before Rome’s collapse the government was shaving gold and silver coins down to create more currency. They also had a severe debt crisis. The shaving and continued spending led to awful inflation that eventually catalyzed the empire’s downfall.

History is being made every day and the decisions are going to shape the face of America’s future. It is imperative that we start to take our medicine (meaning we must face the financial problems instead of ignoring them) and deal with the overwhelming burden of debt before it swallows up everything left.

10Sep

Why are banks buying oil if they are not lending?

Alex Business, Commodities, Economy, Finance 0 comment

I would like to pose an important societal question to any banker that is willing to answer it:

Why are bankers increasingly hesitant to lend, even drawing back lines of credit, yet at the same time allocating a lot of funds in to commodities, especially oil?

Isn’t it true that oil and consumer consumption are closely correlated?

Are they seeing something that I am not or is this a bit of a logical paradox?  How can the banks create the growth they need for their trade (or investment) to be profitable if they refuse to lend to those that would spend it on consumables?

There has to be more than just dollar weakness factored in to this equation.

09Sep

Credit problems linger in financial markets

Alex Bonds, Business, Economy, Finance, Stocks 0 comment

There are no shortage of credit problems to navigate through with mortgages (both subprime and now prime), credit cards and commercial lending, potentially indicative of a deflationary credit squeeze for the everyday person who will no longer be able to borrow to buy everything based off their future earnings or assets.  This contraction could also have very negative effects on small business growth and hiring, too.

It’s because consumers and small businesses account for the majority of the US economy that I think we are wise maintain a defensive posture as most of the multi-month rally’s asset allocation haven’t taken this matter in to focus yet.  I believe we are well out of bounds of realistic equity valuations and the dollar is being sacrificed by the printing press of the Federal Reserve, Treasury and Congress to temporarily support financial markets.

Once this liquidity flood induced euphoria wears off there will be severe consequences to the US currency, bond and equity markets that most investors don’t seem to be aware of or have not positioned themselves for.

Sources:

http://market-ticker.denninger.net/uploads/KeyCharts/Credit-y-o-y-large.png

http://www.federalreserve.gov/releases/g19/Current/

http://econompicdata.blogspot.com/2009/09/consumer-credit-freefall.html

http://www.marketwatch.com/story/troubles-shift-to-prime-borrowers-wsj-2009-09-04

http://www.boston.com/realestate/news/blogs/renow/2009/09/mortgage_market.html

http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSN0829660420090909

http://www.reuters.com/article/newsOne/idUSTRE58752720090908

01Sep

Risk aversion increases in global markets

Alex Economy, Finance, Stocks 0 comment

The Chinese sell-off seems to be spreading as US markets are experiencing profit taking bringing them below 1000 on the S&P 500 and leaving them oversold by many short term technical indicators.

What’s next?

My forecast isn’t too optimistic given the convergence of many different economic complications. I think that the risk remains very high that the market faces a significant correction given the irrationally optimistic rally we’ve experienced since the March apocalyptic head-fake.

Real world valuations simply don’t match stock prices and future profits are not going to come from anything more than further cost cutting. The picture being painted is anything but rosy.

Add to that a looming commercial real estate crisis, a bankrupt government and an FDIC that’s running out of insurance for depositors as banks continue to fail.

What happens when the next shoe drops?

Consider this: We’ve had a jobless recovery and everyone is optimistic. People feel like the worst is behind us, yet unemployment remains remarkably high. Then, the unexpected. Another economic meltdown.

If we were to go in to a downward economic cycle and reenter recession here after this artificially orchestrated ‘recovery’ the devastation would be deep and pronounced. Unemployment could rise exponentially as commercial real estate implodes, forcing malls to shutter and tens of millions of Americans out of work.

The materialism capital of the world

The United States has 600% more malls than any other country on Earth. Our economy is very consumer driven, yet right now the consumer is so leveraged in to debt they can’t afford to spend much. This is a broken and unsustainable model that will continue to eat away at our economic core until we see a more sustainable (and modest) implementation of capitalism.

Because the economy is consumer driven and because consumers can not spend we have a conundrum that bank bail outs can not solve. How do you engender an era of confident spending by selling off the average consumer’s future with gigantic amounts of debt that in no way benefits the debt holder? Certainly there has to be a better way.

The real crisis is coming

It is my opinion that we have yet to experience the true crisis that will manifest out of the past few decades of reckless unimaginable greed. No amount of reflationary policy can adequately combat the implosion of credit capital that has drained liquidity and forcibly deleveraged the global financial system.

The only success the government can claim here is that they have temporarily staved off this crisis by sacrificing the fiscal solvency of the Treasury. Ultimately the United States is the most indebted country across its respective private citizens, corporations and governments. This national debt costs the country $500,000,000 per day in interest.

The national debt is largely owned by foreign countries like China, Japan, UK, Russia, Saudi Arabia and others. Does this sound like a sustainable plan for the future of our country? Can we truly continue to borrow our way out of crises we’ve created by ignoring our looming debt and anything resembling fiscal responsibility?