Saturday, June 5, 2010

Greek Crisis Explained

The Greek Crisis Explained, Episode 1 from NOMINT on Vimeo.

Part II:

The Greek Crisis Explained, Episode 2 from NOMINT on Vimeo.

Part III:

The Greek Crisis Explained, Episode 3 from NOMINT on Vimeo.

Year To Date Performance

I last showed the year to date performance chart of every asset back on May 13th.  A lot has changed in just a few weeks.  The following shows the current YTD returns:

Congratulations to those holding cash and precious metals.  You are crushing it this year thus far.

Sugar has been hit the hardest, although its depressed price today may be viewed as a bargain a few years from now.

Thursday, June 3, 2010

Sovereign Debt Contagion Spreading

The debt contagion is spreading rapidly around the world.  It moves like a silent virus, attacking country by country.

Earlier this week we heard news that Brazil had a failed auction on their long term bonds.  This means that they did not like the interest rates investors were willing to lend at, therefore they said no thanks.

The same thing happened this morning again in Romania.

In Hungaria the CDS (insurance on debt) are skyrocketing and the IMF has already boarded a plane to talk to their leaders about solutions to the coming crisis.

Nothing has been solved in Europe as the contagion continues to move through the PIGS.  (Portugal, Italy, Greece, and Spain)

The volume of debt to be financed in Italy this year is ten times that of Greece.  They have a larger portion of income, but regardless, there is no money to finance any of these sovereign bankrupts.

Spain has seen a near collapse in their banking system as many of their large banks have needed bail outs over the past two weeks.

All the PIGS CDS continue to rise, meaning investor's fear of default continue to rise, and it appears they have brushed off the $1 trillion bail out.  The Euro currency has continued its decent lower as well.

The following chart shows total PIGS debt needed to be financed over the next few years.  Total: Just a shade under $2 trillion.

Behind the scenes the contagion has already entered the UK.  They have topped the leader board week after week recently in total volume CDS.  (Large investors buying insurance on their debt)

This crisis will ultimately lead to Japan as well, which has a debt to GDP level of over 200%. 

Meanwhile the USA has been the biggest beneficiary of the global debt meltdown.  Investors have rushed back into treasuries (US gov't debt) over the past four months as they have sought perceived safety.

Iran announced yesterday that they will be diverging themselves of their European debt and significantly adding to their dollar position as well as gold.

Events are happening so fast it is hard to keep up as the contagion moves like a black fog.

It is important to remember that the final destination of the crisis will be on the shores of the United States.  As we are the beneficiary of the crisis now, it will soon be the exact opposite.

The crisis here will begin with our state governments (muni debt) which are already in the early stages of collapse.  I will explain the full extent of the muni debt disaster in a future article but the bail out that will be needed here will be monumental for both state debt as well as government pension funds.

All roads lead to a global currency crisis as investors are losing faith in paper currencies around the world.  The final rush will be to gold and silver. 

Hopefully the US Mint has plenty of metal to sell to the public......

Wednesday, June 2, 2010

US Mint Precious Metals Sales Suspended

After record sales in February, March, and April, the US Mint saw an absolute explosion in demand for their silver coins in May.

The result:  The US Mint has announced it has run out of silver and is suspending sales until further notice.  This coincides with similar announcements around the world from many of the large silver producers.

We can only hope JP Morgan can provide an enormous large naked short sell off to bring the paper price artificially down one more time.  With Federal authorities already looking into JP Morgan's illegal activity and price suppression, investors may not get that chance.

We are probably less than 24 months away from silver separating itself from every other asset on the planet and going to price levels that seem impossible today.

Accumulate ounces.  Do not worry about the paper price.

From the US Mint:

Production of United States Mint American Eagle Silver Proof and Uncirculated Coins has been temporarily suspended because of unprecedented demand for American Eagle Silver Bullion Coins. Currently, all available silver bullion blanks are being allocated to the American Eagle Silver Bullion Coin Program, as the United States Mint is required by Public Law 99-61 to produce these coins “in quantities sufficient to meet public demand . . . .”

**Four hours after finishing this post, I received word that they have suspended sales on gold as well.  Let the physical shortages begin**

Sunday, May 30, 2010

What Happens Next?

**I am not a financial advisor.  Please speak with one before making any investment decisions.**

The major focus of this site is to look at long term macro economic shifts in the global economy and how that will affect different investment classes and choices.

However, while the larger picture is fairly clear, the question I am most often asked is, "what is going to happen next?"  "What is going to happen right now?"

While I believe this question is less important than the big picture, I'll take some time here to talk about the short term picture I see and what I am personally doing with investment decisions.

It would take an entire book to give you the why, but here is one sentence to summarize my short term view:

I believe we are heading through a period of short term disinflation where assets across the board are going to fall in price.  In response to this event, central banks around the world will bring the nuclear option that will either re-inflate many markets, or break the financial system completely.

So what I am doing to prepare for this?

The first thing I have been doing is raising cash.  I am not selling any of the assets I already known, but I am not investing new money into the assets I like because I am waiting for a better price.

As an investor during these periods of fear in the markets you want to understand what is a fundamentally strong investment, one that could fall in price due to coming liquidations.  In times like this investors may need to sell anything to stay alive, creating opportunities for the prepared.

My shopping list looks something like this:

Australian dollar
Canadian dollar
Asian currencies and stocks

I watch the price of these assets on a daily basis.  I then wait for them to go on sale, similar to a housewife watching the prices at the grocery store.

So what do I recommend in the short term?

Try to create your own shopping list and decide which investments are fundamentally strong and which are fundamentally weak.

My shopping list of investments to avoid looks something like this:

American real estate
American stocks
Long term treasury bonds (federal government debt)
Municipal bonds (state government debt)
American corporate bonds (business debt)

To build cash I would recommend holding ultra liquid cash equivalents such as:

Cash at safe banks

(For additional investment recommendations please click on the FT Capital tab to the right)

Good luck shopping.  It's going to be a bumpy road ahead and hopefully many of the best assets will continue to go on sale.