Saturday, March 6, 2010

Intelligent Preparation

On the weekends while I spend time cleaning my apartment, doing laundry, and working out, I listen to radio shows and books on my ipod.

I just finished an excellent interview with a man named Gerald Celente who was recently visiting Chile during their terrible earthquake experience.

In the video he discussed the importance of being prepared for unlikely events.  The interview can be heard here.

He discussed that it is important to have yourself prepared for the worst, and if that situation doesn't happen, that's great, just go on with your every day life.  Every month I send a check to my car insurance company and I pay for health insurance.  I would imagine most Americans do the same thing.  They do not hope to get in a car accident or to get sick, but it is intelligent to prepare for both before they happen.

I spend a great deal of time studying the financial markets and economics. I study both history and where we are presently.  I see three potential rogue waves that could effect Americans today.  They are:

1. Government debt default
2. Currency debasement
3. Inflation risk

One thing that was discussed in the interview above was to be prepared for a wide range of risks that we face in the world today.  I do not have time personally to become an expert in all fields so I try to listen to people that are far more intelligent than I on certain topics. 

For example, I have an amazing, beautiful, girlfriend who is extremely knowledgable in the realm of nutrition and health.  Over the past few years she has taught me the dangers in the food most Americans eat, specifically the chemicals in many products.  I have cut back significantly on the amount of soda I drink and have moved to coffee.  I have cut back on many frozen foods and moved to prepared meals with more organic products.

I am not very knowledgable in the realm of politics.  My father is.   While I help him with finances, I listen and learn when he explains to me what is happening in the political world.  The other night he was discussing the instability of the parties today and the growing movement of a third party that could be a major factor in the next election.

I have a friend who works for the department of defense.  He informs me about the geo-political instabilities around the world and helps me understand the dynamics of wars we are involved in today.

My point is; don't try to be an expert on everything, but listen to people who study certain topics. 

My focus is on finance, and I will do my best to continue to inform on the coming dangers.  It will be a very bumpy ride ahead.

Problematic Projections

New revised budget updates for the next ten years from the CBO point to a much scarier chart as can be seen below.

What happens when investors lose faith in a country's debt when that country is dependent on perpepuatual debt spending?

See below:

Friday, March 5, 2010

A Picture Of The Future

Riots began today in full force on the streets of Greece as the government began its spending cuts plan.  The plan will involve a large number of government workers either losing their jobs or taking severe pay cuts.

One can only imagine what the streets of Washington D.C. will look like in a few years when our government will be forced to make these same cuts to our beloved $138,000 average annual salaried government workers.

It will not only effect the government bubble city of D.C., but will touch every American when they find out they have been promised social security and medicare and there is no money saved for either.

Our debt crisis will be delayed with the printing press, but the scenario will end up far worse and the rioting will be in far larger numbers.

Good thing our leaders already have troops being trained down in Texas to prepare for "emergency" civil unrest.

Keep on spending Obama, the bubbly is good.

Thursday, March 4, 2010

Harry Markopolos: American Hero

Unbelievable interview with Harry Markopolos who broke the Bernie Madoff case.  He also discusses the current state of the financial system, including the accounting fraud taking place today with the tax payer's money at the major financial companies.  After getting to the page using the link below, click on the mp3 logo on the bottom left of screen:

Wednesday, March 3, 2010

Real Estate Loans

Commercial real estate delinquencies have hit fresh monthly highs as can be seen below:

The number of homeowners currently not paying their mortgages, but not in foreclosure, has risen to 5.1%.  This is the "shadow inventory."

Living for free is starting to seem very appealing to those that are underwater on their mortgage.

Tuesday, March 2, 2010

Has Bank Lending Really Slowed?

As you have heard repeatedly on the news, banks have cut back their lending sharply since the credit crisis began.  In fact, as the chart shows below, lending fell last year to its lowest since 1942.

So what are banks doing with all their deposits if they are not lending?

Ah, now that is the question that is never discussed.

It is not that banks are not lending, they are just not lending to consumers or businesses.  They are, however, lending to the Federal government. 

Since March 2008 bank lending has declined by 220 billion.  During that period they have purchased an additional $337 billion in government debt.

The following chart clearly illustrates this divergence:

The reduction in bank lending does not mean the money supply is shrinking, it just means it is being diverted toward government spending instead of private sector growth.

Who Would You Lend To?

The following chart shows the spread between 30 year mortgage bonds and 30 year treasury bonds.  The spread means the difference between the two.

Imagine you have $400,000 to invest today.  You have two options.  They both will make interest payments to you every month for 30 years. 

1. Lend an American home buyer $400,000 that they can use to buy a house.

2. Lend the government $400,000

At today's rates you will recieve only .5% more in interest by lending to a home owner vs. lending to the Federal Government.

Can you see how artificially low mortgage rates have been suppressed by the Federal Reserve buying?

No intelligent person would lend to a risky home owner vs. lending to the government for a difference of .5%.

Commercial Real Estate Storm Approaching

Monday, March 1, 2010

Chris Wood

CLSA's Chris Wood discussing the global economy and financial system.  Try not to be frustrated by the talking bubble heads asking him a question, then cutting him off before he has a chance to explain to them what is actually happening in the real world.

Sunday, February 28, 2010

Weekend Watching, Listening, and Reading

An interesting video this week from Bloomberg discussing Goldman Sac's fears of a looming Japanese government debt problem:

Another interesting conversation this week on Fox Business News as they speak with Peter Schiff. I thought it was funny when he explained how America's debt burden is far worse than Greece. The talking head's response: "That doesn't matter."

Great radio show this week on the Financial Sense Newshour with Jim Puplava, especially the two mega trends topics which focus on oil and sovereign debt. (MP3 format available)

A great interview this week on King World News with James Dines.  It is a two part interview discussing the global financial system and future outlook.

And finally, the article that has everyone talking this weekend comes from Niall Ferguson: "Empires on the Edge of Chaos."  In it he looks back at history to show how empire declines come very quickly and unexpectedly and are always due to debt/fiscal problems, and he ends with how those previous falls compare with the Unites States empire today.

Banking System Sacrificed

Great article this weekend from Floyd Norris of the New York Times who begins by stating:

More than $1 in every $10 that American banks have outstanding in loans is lent to a troubled borrower, a ratio far higher than previously seen in the quarter-century that such numbers have been compiled.

The problems are greatest in construction loans for single-family homes, where nearly 40 percent of the loans either are delinquent or have been written off as uncollectible. But they are also high in mortgage loans for single-family homes, where $1 in every $8 of loans is troubled.

Full article here.

Barry Ritholtz sums up the situation best:

That is what happens when we elected to go Japanese rather than Swedish on the financial sector - We saved the Banks, but sacrificed the Banking System.