Friday, April 15, 2011

Greece Death Watch Update

The Greek 10 year bond went parabolic this morning when news came out of Germany that they would entertain taking haircuts on Greek bonds.  This means they will allow bonds to default and those that own the bonds (the banks) would be forced to take write downs on the losses.

Greece, Ireland, Portugal, and Spain cannot pay down their debt.  It is now a matter of whether the debt will be monetized (euros printed and bonds purchased) by the European Central Bank, just as the Fed is doing here in America, or if they will allow the debt to be restructured.

The process is fascinating to watch, and it will only take one domino to fall to bring us into the next chapter of the financial crisis. 

In the meantime gold and silver believe that there will be no restructuring and the answer will come from the printing press. (As do I)  Both metals rocketed to new highs this afternoon.

E - Trade Baby

How the next flash crash in the stock market will be experienced by the E - Trade baby.

Wednesday, April 13, 2011

Historical Home Price Update

The following is the updated chart of the historical Case - Shiller Home price index.  The dotted red line tracks where we would have to fall in order to get back to the historical mean home price.

Usually bubbles tend to "over" correct so the dotted red line may turn out to be an optimistic projection.  The most recent bump in the downward price collapse was the artificial home buyer tax credit which lured in some new owners of the American nightmare.

h/t The Big Picture

Present - Past - Future Speeches

On the news this afternoon we have our President Obama with his new and exciting budget plan for the years ahead. It is the same proposal we hear every year around this time:

$Trillions in spending cuts
Higher taxes

We know by know that the spending cuts don't actually come, and surprising to many, the higher taxes don't come either. It is, however, great for some afternoon comedy as media networks discuss the impact of make believe spending reductions.

Watching Obama rivet and excite his audience this afternoon as they hung on his every word of change we can believe in, I recalled the same speech given back in 2009 regarding the drastic budget cuts we would experience ahead in the new America......

And finally, a quick preview of Obama's "All is well, Nothing to see here, Please move along" speech in 2014 when both our bond market and currency collapse.

Tuesday, April 12, 2011

China's Real Estate Bubble

An excellent look at the extent of China's current property bubble.

Sunday, April 10, 2011

Budget Deficit Drama Concludes

After a long week of theatrics that could rival any Broadway play our leaders have come forth with a budget in place allowing our government to continue running without a...(enter dramatic music)...shut down.  While there was never any danger of an agreement not being put into place, it allowed the media and American citizens who can't see the big picture a week of real excitement.

When looking at the big picture, or total pie, the theatrics this week become more of a comedy than a drama.

This can be clearly illustrated with the fantastic picture below:

The entire circular tray represents the total annual government spending: $3.82 trillion.

The portion that is the pie represents the annual revenue (taxes) our government takes in: $2.17 trillion.

The remaining empty portion of the pie tray represents the annual deficit: $1.65 trillion.

(Spending: $3.82) - (Revenue: $2.17) = (Deficit: $1.65)

There are two crumbs that were pulled off the pie. The first represents the GOP proposed cuts to spending: $61 billion.  The second represents the democrats proposed cuts to spending: $33 billion.  The size of the crumb is what our leaders spent the past 3 weeks arguing over.

Can you see the size of these cuts in relation to the total deficit?  Imagine how long it would take them to put together a plan to make a real impact on our fiscal problem moving forward..

Our lenders (China and Japan) must have been watching this week's theatrics in horror.  Bill Gross, who manages the world's largest bond fund and just sold 100% of his treasury (government) bonds, was most likely doing the same.

The truth is that the difficult spending cuts will never come.  Our leaders will only make the adult changes when our currency begins to collapse and our bond market implodes.

At that point it will be far too late.  The time to prepare yourself for this coming disaster and financial crisis is right now.  I hope this week's drama was a clear sign to you as an investor that our political leaders have no intention of making the tough decisions needed for our country.