Saturday, January 2, 2010

Welcome To 2010

The last two years were two of the most exciting in history. We witnessed the meltdown in the financial markets, and the subsequent liquidity driven rally during the second half of 2009.

The question on everyone's mind is: "Where do we go from here?"

This site works every day to try and bring that answer to you. Unfortunately a short term forecast is extremely difficult to comprise due to so much government intervention in the markets. Where we go over the next 12 months will depend almost entirely on the amount of government stimulus to try and prop up our broken economy. However, if you want a specific outlook on where we go in 2010 you can read it here. I agree with the forecast 100%.

Where we go over the next 3-5 years is easier to predict. Everything the government does to try and prop up the phony economy in the short term only leads to greater damage in the long run.

Along with a new site design and name change, I have provided the answer to the question I get more than any other: "What do I do with my money today to prepare for the world tomorrow?" I have provided that link to the right.

As markets move I will update that page with the % composition of your portfolio in each category.

Some time during the year I will be providing a page focused entirely on real estate. With the residential housing market getting ready for its second wave down and the commercial real estate market poised for a complete collapse we are getting closer to the point when purchasing real estate will make sense as an investment. The real estate page will focus exclusively on that investment class.

To get 2010 started I have two important discussion topics below. Thanks for your continued reading, and buckle up for what should be a year we'll never forget.....

Treasury Purchases

The following is an incredible analysis from Eric Sprott regarding $700 billion in missing treasury bond purchasers this year. Due to its importance, I have decided not to try and summarize the article but present it in full below. Following the article is a follow up discussion from Zero Hedge regarding hedge fund treasury purchases. Please enjoy:

Sprott December

The first question you would now ask is, "what is the role of hedge funds in treasury purchases?" I have that answer for you here.

Jobs And Homes

There were two big news stories of the week: Jobless Claims and Home Prices.

The jobless claims were released on Thursday to a thunderous applause from all media sources. Initial jobless claims came in at 422,000, a 22,000 decline from the previous week, and below market consensus.

This appears to indicate that less people are filing for unemployment and another indicator that the economy is bottoming.

The media reporting stops its discussion right there and moves on to the next topic to cheer lead. However, if you scroll down the labor report just a little further you see something called "Emergency Unemployment Claims." Hmm...What is that little piece of info?

When an employee loses their job they get 26 weeks of unemployment in most states. After that point they can file for 13 weeks of extended unemployment benefits.

At this point their state level benefits have expired. Due to the economic collapse, the government created a program at the Federal level called "Emergency Unemployment Claims" for people who have reached this point.

That number this week hit a new all time record of just under 4.5 million, adding 191,000 this week alone. What is happening is not unemployment improving, its that people are out of work so long that they are falling out of the state programs and moving into the Federal program; the number not reported in the news.

For even more on the misrepresentation see here.

The second piece of news came from the Case Shiller Home price index which reported that homes prices came in flat month over month, another sign that the housing market has bottomed.

The Federal Reserve and big government have thrown so many programs and so much money at the housing market that they have actually managed to keep prices flat, momentarily. Home owners purchasing today will be jumping at one of the biggest head fakes in history, and the government intervention has created the selling opportunity of a lifetime for people still owning homes.

With the Federal Reserves mortgage purchases they have brought mortgage rates to all time record lows. If interest rise from here (and they already are) then homes become more expensive to finance and prices will fall.

The FHA and Ginnie Mae have combined to create the no down payment loans featuring short term teaser rates seen a few years ago. If these programs go away (and they will once they start reporting the coming losses) then it will cause down payments on homes to be higher and home prices will fall.

The government has created buying incentives such as the $8,000 first time buyer credit and the $6,500 move up credit. When these programs end then the benefit does not go to the buyer, it goes to the seller. It has now made homes $8,000 cheaper as new buyers do not have the credit to buy in. Home prices will fall.

As unemployment continues to worsen people, the second wave of option arm defaults begin, and the flood of foreclosures currently on the banks balance sheets begin to hit the market it will bring in an ocean of unseen supply on the market. As supply rises prices will fall.

During Christmas Eve the government leaked a fascinating piece of information to the markets. Fannie and Freddie, whose losses were originally capped at $200 billion when they were nationalized and then were brought up to $400 billion, are now allowed to take unlimited losses on their balance sheets.


This move coincides perfectly with the Fed ending their mortgage purchase program in March. By playing sleight of hand the mortgages will now be purchased by Fannie and Freddie and as the toxic debt explodes on the balance sheet it is the taxpayer directly that will stand ready.

The end result is the same either way. When Fannie goes to the Treasury for the money the Treasury will just sell bonds to the Federal Reserve for the bail out. The Federal Reserve will print the money to buy the treasury bonds just as they were before.

Sleight of hand today and bloodshed tomorrow for our currency.