Friday, September 7, 2012

Jim Rogers On Europe, The US Election , & The Next Big Election Opportunity

The legend Jim Rogers spoke with Reuters this week on his thoughts on the global economy and financial markets. Rogers, who co-founded the Quantum Fund with George Soros, explains why the next downturn will be far greater than the last and where he is investing his money today.


Baby Boomers Savings Decimated Making Payments On Underwater Homes

The website You Walk Away posted some amazing information this week after studying the baby boomer portion of those that have walked away from their home (strategically defaulted after their home mortgage moved underwater). The first chart shows that 53% of those that walked away were in the 50 to 69 age bracket.


48% of the baby boomers polled depleted a good portion or all of their life savings before walking away. This number is so horrific I almost do not even want to think about it. It is terrible to think that people still feel there is something morally wrong from walking away from a loan owned by our current banking system.

People think that someone who owns a bank has worked hard to save those thousands of dollars that they had the decency to lend to them to make that home purchase. What they do not understand is that the money did not exist before the loan was made. Money is lent into existence under our current monetary structure. When someone signs for a loan or swipes their credit card, that money is created as a ledger on a balance sheet. Then that ledger begins collecting interest.

On some subconscious level I feel that people are moving closer and closer to understanding that our currency has no tangible value. Why do I think this? Because after depleting their savings to make payments to a bank, and thus destroying their life, 97% of those that finally walked away said they would recommend a family member walk away (except much sooner).


For those that need a primer on modern money mechanics, a topic discussed here numerous times that has hopefully changed the way most readers view the world (what they are working for, how to invest, etc.), the following video will provide a brief primer.

 

 For more on this subject and how it applies to where we are today see:

 Michael Maloney Discusses The Currency System

 Michael Maloney: Why Gold?

The Coming Bailout In Spain: Europe's Elephant In The Room

Great graph below tracking Spanish government bonds over the past two years. The 7% mark has become the psychological (and real world based on match) Maginot line where Spanish bonds enter full bail out territory. It is a question of when, not if, we will break back through that point again.


The reason being is that the Spanish economy continues to implode across every sector. There is a full run on basically every asset in the country right now. It has crossed the tipping point, and you can see from the chart below that the pace of outflow is beginning to accelerate.


The total Spanish bank and government bond bailout estimates are impossible to quantify due to the fact that the situation grows worse by the day. What we do know is what will be needed is larger in size than the entire current bailout mechanisms in place in the Eurozone. Spanish leaders are meeting with the Germans right now to make sure they will have German support before they formally request a bailout. This formal bailout request will be needed before the European Central Bank can step in with force to provide "assistance", as they have with Greece, Portugal, and Ireland.

The dominoes are lining up right now behind the scenes, and they will begin to appear on the surface shortly. Most likely around the time Spanish bonds cross the Maginot line once again.



h/t Zero Hedge

Mark Cuban On CNBC

Mark Cuban, who will always be welcome here with his thoughts on pretty much anything, sat down with CNBC this morning to discuss politics, Facebook, entrepreneurship, and why he's leaning toward Obama.

 

Thursday, September 6, 2012

Democratic National Convention Consensus: Completely Ban Corporate Profits

There are no words I can provide to prepare you for what you are about to see in this video. It sums up in less than five minutes the absolute STUPIDITY of the world we live in today. Please, please, for anyone out there that agrees with anything being said in this video, go to the recommended reading link above and read the book How An Economy Grows And Why It Crashes. It provides an easy primer on economics told through a story with pictures.

What a laughing stock this country has become.

Obama's Stock Market During The Eye Of The Hurricane

As Obama prepares to take the stage for the final event of the Democratic National Convention outside my door this week in downtown Charlotte, let's take a look at how the stock market has performed from his inauguration speech on January 18, 2009 through today. As you can see, the stock market has had one of the greatest moves up in history during his tenure as president. The S&P 500 is now less than 10% away from the all time record high reached in 2007.


I wish, for Obama's sake, that he was giving this speech to announce that he was resigning from the presidential race and handing the election to Mitt Romney to take it from here. Those that study history will remember that during the 1930's, the last depression America faced, the stock market had a multi-year massive run up from the lows in 1931 to 1937. We know now that that period was only the eye of the hurricane as the stock market crashed down again in 1937, although it was less of a crash than the original fall seen in 1929.

It is my guess that we are about to experience the same thing only in reverse. I think the first crash in 2008 will be viewed as being more similar in scope to the one in 1937, and the crash that is ahead of us, the second leg of our current depression will feel more like 1929. The big one.

This crash will not appear in the same fashion as it did in 1929 because we were on a gold standard at that point, but in real terms it will end with the same result: a 1 to 1 relationship with price of gold and the DOW. With gold hovering at 1700 and the DOW hovering close to 13,300 it is my guess that some time over the next 4 years during this presidential term those two numbers are going to converge or come very close to it.

You can place your bets on whether that means going long gold or going short the stock market. I am doing both.

Since I need to be fair to those that love Obama (the chart above) and those that don't (the chart below), I present to you the "other" chart that has moved up significantly during his tenure. His contribution can be seen in the red portion of the graph below.


Bill Gross: Why Gold Is A Better Investment Than Stocks & Bonds

Bill Gross, manager of the largest bond fund in the world at PIMCO, shook up the markets at bit last week when his fund's holdings showed they had significantly increased their position in the barbaric relic: gold. He discusses in this interview why he sees gold as an even better investment than.....stocks and bonds? All the largest money managers around the world, the big smart money, continue to take massive positions in gold. They must have all really lost their mind.


Apple's Dominance In The Phone Market

I thought the following info graphic was interesting, not only due to the sheer power of Apple in the phone market, but the reason that the majority of people said they were purchasing the phone. The biggest problem I have with my phone, and the absolute number one reason why I would purchase an iPhone, is longer battery life. 93% of customers polled said that was the reason they were purchasing the iPhone 5.

iPhone Predictions
Source: TechBargains August 2012 Apple Survey
by TechBargains.com, your best source for deals and coupon codes.

Tuesday, September 4, 2012

This Is What Going To The Gold Standard Looks Like

Interesting video from Bloomberg below discussing what going to a gold standard would look like in America in order to back the currency in circulation. We know today that most cash is not held as physical paper cash and coins (the $2.3 trillion discussed in the video), but in savings accounts and time deposits at the bank (the Fed's measurement of M2 which is now over $10 trillion). In order to back current M2 levels, which are rising by the day, the federal government would have to purchase every available above ounce of gold in the world.

What Bloomberg does not discuss and what is the most logical way to go back on a gold standard since it is impossible for the United States to own every ounce of gold in the world, is to revalue the paper price of gold. Estimates range around $9,000 an ounce of gold to back just the M2 money supply. In order to back M3, the total money supply, it would take over five times that price of gold.

This will occur in one of two ways over the next few years:

1. The orderly way where politicians get in front of the problem and put together a plan to revalue gold upward quickly and organized as they did during the great depression. In the early 1930's they revalued gold upward by 70% over a weekend (in turn devaluing the value of the dollar by 70%).

2. The chaotic way where the market will determine the free market price of gold on its own. When a tiny percentage of the paper instruments around the world begin to move toward precious metals (currently less than 1% of all investments around the world  are held in gold related assets) then it will trigger a revaluation many thousands of dollar higher. At that point there will be no stopping how high the paper price of gold moves during the mania.

This topic was discussed in great detail in Jim Rickard's book Currency Wars, a must read for anyone trying to understand the future of the global economy.


The Investor Sentiment Wheel: Tracking The Bond Bubble

Why the herd, due to human psychology, tends to rush into a market close to its peak and not sell before its too late.
  The Investor Sentiment Wheel InfographicTrustable Gold

This herd mania is actually occurring right now in front of us as the bond market is entering the mania stage of its bull market. Average investors are dumping the "risky" assets such as stocks, bonds, and gold to move into the "safety" of bonds. This has been taking place week in and week out since the financial crisis struck in 2008, which can be tracked with weekly TIC flows.

This has moved beyond the average investor in their 401k's to the big money tankers such as pension funds. The following shows the shift from stocks (white) to bonds (green) since 2003.


Junk bond yields dropped to an all time low of 6.74% this past Tuesday. Investors see no risk ahead in the bond market and are piling into the assets that deliver the highest annual return. The same is happening in the municipal market, even as cities begin to burn around them. Stockton, San Barnardino, and Mammoth Lakes have declared bankruptcy in California. A slew of others are hanging on to their last thread. Investors do not care because they have been told bond funds are safe.

In the corporate bond market the average interest rate on investment grade bonds has fallen steadily from late 2008. Investors continue to pile their money in.


The ultimate madness is taking place in the long term treasury market where interest rates touched down at all time historical record lows over this past summer as the United States piles on mountains of additional debt it can never pay and is simultaneously diluting the value of the bonds through QE programs. If (when) interest rates finally begin their long move higher in the treasury market it will take the principle value of all other bonds down with it, as they are all measured in relation to the treasury yields (known as the spread). 

This natural market cycle, where the average investor moves like a herd and is slaughtered over and over and over again, is taking place once again. It will happen again during the next cycle (most likely in commodities), and happen again during the following bull market (most likely stocks). The goal is to purchase early and steadily before the herd arrives and step away as the mania psychology sets in.

Monday, September 3, 2012

In My Office With The Democratic National Convention Right Outside My Door

I live in downtown Charlotte, NC where the Democratic National Convention is taking place all week. I just stepped outside my front door and there were literally 200 police officers lining the street with cop cars and a helicopter that was flying over my head.

All the streets are blocked off for cars coming in and if you walk past the car blockades you come to fences keeping walking people out of the entire city. It looks like a scene from a war zone or something from the movie Outbreak. I would take a picture and post it here, but I actually feel in danger of being shot with the camera flashing.

Inside the ring of protection the democrats are throwing an incredible party. In some of  the more upscale bars in the city they are having private parties with open bars and top notch food.

They are lavished the way a Roman Emperor was hundreds of years ago, only with far more extravagance. People that can enter the barricade and get close to a politician have lined the city to cheer on these celebrities. Lebron James, Justin Bieber, and Britney Spears visit this city on an annual basis. The scene upon their arrival is nothing like what is taking place here now.

The irony of it all is that as they are spending millions to throw their party here in the city to honor the gift they are to our country, we are closing in rapidly on the coming US debt crisis created by political spending. It is like a dot com company throwing an extravagant New Year's Eve party on December 31, 1999 just months before the NASDAQ peaked (and then crashed) in March of 2000.

When the United States bond market finally enters its Greece moment there will be no such "extravagance" held at these annual parties. People's awe at the "greatness" of politicians, these people whose salaries we pay with tax dollars every year to destroy our country, will turn to anger.

The party this year, in 2012 outside my door, could likely be the peak of the insanity. Let's hope so.

Another quick look at the portion of the budget that will never realistically be discussed in cuts on either side of the aisle, the 90% of total spending made up of defense, social security, interest, and health care. Click for larger image:


Happy $16 trillion to those partying in the city tonight. Oh, you didn't notice that we just crossed over the next trillion dollar milestone? That's because we crossed $15 trillion less than 10 months ago. We should only be picking up speed from here.

  national debt

As The World Economic Data & Stock Markets Turn Down, US Stocks Rise

The global economy continues to slow, seen clearly in the consistently downward trending manufacturing numbers released month after month. The most recent data shows that while the US is still barely hanging on above 50 (the line determining growth vs. contraction), both China and the Euro zone (the other two pillars of the global economy) have moved significantly below the contraction line.


China's flash PMI continues to show contraction.


The inventory of finished goods in China (it is never a strong sign to have inventory piling up) continues to rocket higher as well.


This has led to their stock market hitting multi-month lows. The Euro zone stocks, after experiencing a brief pop higher, have also continued their steady move downward. Most do not realize this in America as the US stock market has become the lone market continuing to defy gravity and move higher as the global economy continues to contract. The US stock market is signaling that the other markets around the world have the story incorrect, and the rest of the global economy and markets will soon take a u-turn and catch up to America's Goldilocks story.

Barron's confirmed this view this week by putting the "untouchable" US stock market and the investor's confidence behind it shrugging off anything that enters its path.


The VIX index, the fear index showing investor's concern toward the future, recently touched down at 13.32 which was the lowest level since June of 2007. Investors are as confident today as they were during the peak of the global boom.

However, the actual global economy itself continues to show something different. The following shows world GDP year over year continuing to move downward.


The obvious question moving forward is; will the rest of the global economy and global stock markets catch up to the euphoria that the American stock market has priced in, or will the American stock market move back in line with the current economic reality the world faces today?

Labor Day Weekend: A Look At The Labor Market In The United States

I hope everyone in the US enjoyed their three day weekend, with most of the country having off today to celebrate the Labor Day holiday. I had the opportunity to spend the weekend down in Pawleys Island, where one of my good friends has an incredible beach home that is right on the water. The house is just a small walk down the beach from the Pawleys Pier landmark where we enjoyed some fine scotch and good cigar on Saturday night.


Since it is Labor Day, we can take a quick look at the current state of the labor market in the United States through the chart below. It shows the jobs lost during the recession (in red), which was the first quarter of 2008 through the first quarter of 2010. The next side of the chart (in orange) shows the jobs gained during the recovery, which unfortunately have almost exclusively come in the lower wage category. This essentially means there has been a shift downward for millions of Americans from higher tier and middle class jobs to the lower wage level for those that have been fortunate to find a job at all. Click for larger image:


I believe we will look at this as the first stage of an ongoing depression in the economy that will soon take   other areas of the economy that have experienced a temporary burst (hint: the stock market) back down to reality.

An Entertaining Summary Of The Republican National Convention

Because you can get a pretty steady and relentless stream of why everything Obama is doing is wrong by visiting this site, I present to you two nice and quick videos on everything that is anti-republican from the entertaining Jon Stewart. Because if Obama will be a complete disaster for the country from 2012 to 2016, we have the comfort of knowing that Romney will only just be very, very, terrible.

Sunday, September 2, 2012

Jim Rickards On Bloomberg

Jim Rickards discusses what the S&P 500 looks like priced in gold. After the secular bull market in stocks and the secular bear market in gold ended in 2000, this chart helps visualize the opposite now occuring which has run for 12 straight years.