Friday, January 28, 2011

Ben Bernanke's Gift To Egypt

I have said for years that the Federal Reserve would unleash an inflationary holocaust in the attempt to purchase all the toxic debt from our banks and federal government, which they have continued to do now for over 2 full years.

The world has finally begun to feel the effects of the Fed's quest to keep banker bonuses above an average of $450,000 per year, which they have continued to do now for over 2 full years.

The inflation has first been exported to foreign countries that peg their currency to ours.  As our dollars flood onto their shores, their central banks must print their own currency in order to keep a stable exchange rate.

This has caused food prices to skyrocket around the world leading to the starvation and rioting that you have seen and heard about on the news over the past few weeks.

The most recent revolution comes from Egypt, where citizens have taken to the streets by the millions in protest of inflation and surging unemployment.


Please understand that eventually these countries will be forced to exit their ridiculous peg to our currency.  At that point the built up dollars that are being temporarily stored overseas will come flooding back onto our shores.

You will see the cost of living in America begin to rise at a meteoric rate, and the rioting you can watch on the stream above will be taking place outside your window.

Bernanke's focus is to ensure that the investment banker employee bonuses stay as close to 7 figures annually as possible.  My hope is that as our country moves into hyperinflation that these investment bank employees use their funds to help feed the starving children in our country.

For some reason, I don't think they will.  And you will see anger in America that you never thought was possible as the people realize how the Genocidal man running our Federal Reserve ruined our nation.

Gold and Silver are currently surging as the market sells off.

Thursday, January 27, 2011

Jim Rogers: Currencies and Commodities

The following video is an interview with Jim Rogers who discusses what he is currently investing in.  (Rogers started the Quantum Fund with George Soros in the late 80's and became a legend in the hedge fund industry)

Rogers has been long commodities during the entire secular bull market which began in 2000, but he is particularly interested in agriculture at the moment and more specifically: rice.

When asked about currencies he said  he owns and continues to purchase Asian currencies and more specifically: the renmimbi (China)

Wednesday, January 26, 2011

Obama Speaks: Market Roars

The DOW crossed above 12,000 this afternoon with the confidence instilled by President Obama's riveting State Of The Union speech last night.

During the speech, Obama made a bold statement that the country would initiate a spending freeze moving forward to bring control to the budget deficit.

A spending freeze. Really?

After bringing our spending up to $4 trillion per year, Obama has decided to make the tough decision that enough is enough.

This is the equivalent of Paris Hilton's family estate bringing her spending up from $125 million to $250 million per year and then capping her moving forward with a "spending freeze."  They will make her sacrifice and live only on the $250 million per year to purchase shoes, clothes, cars, and make-up.

This would be very noble of them as parents, and it is a very noble gesture for Obama as a President.

The only problem with this spending "freeze" of $4 trillion per year is that our country only takes in $2 to $2.5 trillion in income (taxes) per year.  In addition, it owes $14 trillion in debt already.

That leaves a never ending annual budget deficit of $1.5 to $2 trillion per year.

That is a $4.1 billion deficit per day issued in the form of government bonds. ($1.5 trillion divided by 365 days)

Fortunately, the Federal Reserve announced in November that it will be printing $4.9 billion per day to purchase government bonds. ($900 billion in Quantitative Easing 2 over next 6 months)

This portion of the plan was not discussed last night, but should be an extensive portion of the President's address in 2014 when our next president is discussing our currency's collapse.

Until then let's give a round of applause to the man behind the real budget solution:

No. Please. Stand up and cheer for the courage behind our leaders to make the tough choices.

New Homes Sales Incredible

The media has the headline streaming across the front page of their websites today, and it will be on the front page of the printed paper editions tomorrow at your doorstep:

"New Home Sales Reach 8 Month High. Prices Up 17.5%!"

My goodness. 

And all that silly talk about new home sales struggling on this pessimistic website.

Before I moved on with other reading, just in case, I decided to do a little research and see where this incredible December in sales stood all time.  Drum roll please......

Dead Last

There has never been a worse December in the history of new home sales.  The following long term chart provides some perspective on where the market currently stands:

For the media outlets that have trouble reading charts, (like CNN, or CNBC) here is an easier way for them to visualize the current state of the market.

Tuesday, January 25, 2011

Peter Schiff On CNBC

Peter Schiff takes some time to teach simple economics to a guest on CNBC. 

Grantham's 2011 Outlook

I am reading a book right now titled "More Money Than God: Hedge Funds and the Making of a New Elite."  It is an excellent read in  story form (I am actually listening to it) about the history of hedge funds and some of the great names in the industry over the past 80 years.

It documents the big names that made the correct (and incorrect) moves at the pivotal moments in market history (the crash of 87, the Internet stock market bubble, and the financial crisis of 2008).  Many investors spotted the Internet stock bubble in the late 1990's but were run over by the market as they tried repeatedly to short overvalued stocks.

Many of them gave up and just joined the herd.   One who did not, who refused to back down from his value investing and macro economic views, was Jeremy Grantham.  He ended up making a tremendous amount of money for his clients (and was managing over $107 billion at 2009 year end) when the Internet bubble finally gave way.

Below I have included his outlook for 2011.  Here are some of the highlights:

- Bullish on the stock market short term and feels it has the potential to run to 1500 (back to classic bubble) before a massive reversal.  Sees the fair market value of stocks at 990 today and therefore recommends caution to those owning stocks moving forward.
- Very bullish long term on commodities and and natural resources although he is cautious short term due to their strong performance in the 4th quarter
-Does not see enough major dislocations in the currency markets to make an investment

Grantham discusses the 3rd year of an election cycle as being tremendously bullish for the stock market.  Below is a chart of the S&P's performance in the 3rd year of an election cycle from 1955-2003:

And Grantham's letter in full:

Grantham Q4

Commercial Real Estate Confidence

National Real Estate Investor released their comprehensive outlook for 2011. (Commercial Real Estate)

The title of the outlook: "Investor Confidence Surges."

Surges in an understatement.  Marcus and Millichap performs a quarterly poll of the confidence in the commercial real estate market, and the quarter ending 2010 clocked in at the highest reading ever at 152, surpassing the euphoria reached during the peak of the real estate bubble back in 2005!

The chart below shows the astonishing results as investor confidence skyrocketed over the previous quarter:

Here's where it gets interesting.  Of these investors who believe that real estate prices have bottomed, 88% believe that interest rates will be higher by 2012.

Am I living in a bizarro world?  If interest rates are at all time record lows, and 88% of investors believe they will be higher by 2012, how can investor confidence be at all time record highs?

(Please see Rising Rates: Simple Economics for a primer on interest rates and real estate values)

This will not end well for over-leveraged investors entering the market today.

Case Shiller Home Prices November

The Case Shiller home price index was released this morning for the month of November (which is an average of September, October, and November) and it has now fallen for the 5th consecutive month confirming the continued decline in home prices.

The index is now down 30.9% from the peak, and down .5% month over month.  8 cities have now reached new post bubble lows.

As a reminder, these new lows come with the government financing or guaranteeing close to 100% of the new mortgages issued, and the Federal Reserve has already purchased $1.3 trillion in mortgage debt.

We will soon find a bottom in the real estate market, but it will be priced in gold as the government continues to try and support bubble prices.

Monday, January 24, 2011

Stocks Up, Metals Down

The precious metals continue to get hammered downward today as the stock market continues its relentless climb higher.

The market currently believes that the economy will continue to grow at a strong pace and that inflation is less of a concern moving forward.

It is wrong on both accounts, which will present opportunity as we move forward.

America's inflation is currently being exported around the world to places like China where we send them dollars for their goods and their central bank is forced to print yuan currency to buy dollars as they wash upon their shores.

The new yuan currency then stays trapped within the borders of China and has sent food, gasoline, and rent prices through the roof. 

The same is happening in other areas around the world where food riots are breaking out on a daily basis.

Ultimately, the Chinese will have to decide whether they want their people to starve, or whether they want to stop sending Americans products in exchange for worthless I.O.U.'s.  The will have to decide if they want their own citizens to enjoy the products they work hard to create with a stronger currency.

My guess is they will ultimately choose to enjoy their production over starvation.  When they allow their currency to appreciate, and they are no longer forced to swallow the endless dollars created by Bernanke's printing press, there will be a flood of dollars that are washed back upon American shores.

At that point you will see both high inflation and lower economic growth, resulting in the exact opposite effect you see today in the markets.

In the meantime, as stocks run higher it presents a better opportunity to sell (or short), and as gold and silver fall lower it presents a better opportunity to buy.