Monday, October 26, 2009

SNAFU

Situation Normal, All F***ed Up.

The US$ is now everything in the world markets. The US interest rate policy has created the largest carry trade EVER (a "carry trade", if I can oversimplify, is when investors borrow currency in a nation with very low interest rates, and convert the low interest rate currency into other, higher interest paying currencies and/or markets). When these carry trade investors all clamor to convert back into US$'s, they are going to drive the US$ straight up - and everything else straight down. Or not. See, the US is doing its level best to destroy its currency and overwhelm the carry trade exit. The opportunity here is profound. My sense is to watch what the Anti-Christ, er.... Government Sachs, ugh.... I mean Goldman Sachs is doing. These guys dominate the world financial markets and they understand this situation better than your average bear (as in Yogi Bear, not a market "bear").

This is much more complicated than "buy Gold". Gold is not the only answer to the US$. Yes, Gold, Platinum, and Silver will always have some value, long after paper currencies have gone to the happy printing press in the sky, but they are not the end all and be all. You can't eat them, defend yourself with them, ride them, live in them, clothe yourself with them...

I have been a Gold Bull for some time, Silver too. I have a fair amount of bullion. I won't be adding to them at these prices. That does not mean that I am right, but that is how I am playing this. Gold looks stretched out to me. Nothing moves in a straight line. Not that I am looking for a bear market in precious metals, but I would need to see a stiff correction before I would add to precious metals.

Farm land, Hard Wood Timber tracts (not pine plantations but hardwoods like Oak, Maple, Hickory, etc... there is a big difference), livestock, warehouse space in close proximity to rail heads... you gotta think outside the box a little in this environment. I like selling out-of-the-money calls and puts in commodity markets, but that is only for people with a comfort with math and the discipline of a Kung Fu monk.

The key here is to store VALUE. You work hard, consume less than you earned, now what do you do with the stuff left over? How do make sure it holds its value in an era of $1.8 TRILLION budget deficits (oh, and just WAIT till the big bills start coming in for Medicare and Social Security)? What will hold value? Well, what held value in post WWII Japan and Germany? Certainly not their currencies. The guy who had a farm and livestock, or a functioning dental office, shoe repair shop, hair salon, massage parlor, etc... or precious metals, timber, a fishing boat, etc... This is just food for thought, I am not suggesting one more than the other as it all depends on you and your circumstances, but you get the idea. Right now, over 95% of the folks I know rely 100% on their respective currency. I think that that faith is misplaced.

Oh, and here's a quaint notion. Living in a fully paid for, easy to maintain, low property tax home.

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Mexico is the 3rd largest Oil exporter to the U.S., after Canada and Saudi Arabia. In 2006, Mexico's production topped 3.25 million barrels per day ("bpd"). So far this year, Mexico has averaged 2.62 million, and during that 3 year period, Mexico's domestic consumption increased (then click on 1.1b). If there is so much Oil out there, how come nobody stepped up to fill Mexico's shoes - especially in an environment of $80 crude? Because it ain't there, it ain't gonna be there, and it this trend is going to accelerate rather briskly over the next 4 years or so.

While inventories of petroleum products are bulging in the U.S. at the moment, and at this pace it would take over 6 months and maybe a year to bring them down to where they were at this time last year, anything can happen the price of Oil. If you are going to trade it, I'd play the short term trend and be gone if I were wrong. Given the Iran thing, I would not be short. You never know, and that could ruin you.

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California, that basket case of Silly Something For Nothing, has real unemployment of 21.9%, and headline unemployment of 12.2%. It gives me no satisfaction to watch working class people suffering because of the inability of the San Francisco City Hall Communists to understand the human condition. I can't say enough bad stuff to describe Pelosi, Feinstein, Boxer, Waxman and the rest of sh*t-for-brains people dominating that state's politics. Arnold? He's just an ineffective embarrassment, he didn't do California in. It took 30+ years of hard work by some really arrogant jackasses to accomplish this Chernobyl.

The funny thing is, I am sure there is some left wing California propaganda group working hard to place the blame on GWB.

Speaking of which... How come Obama gets a pass on Afghanistan? Never mind. We all know the deal here. But I can't help myself... OK, guys, you are now in charge... show us how its done.

I take it back. Spare me.

Libertariananimal at Gmail dot com


9 comments:

Donal Lang said...

Interesting your comments about investing in real value. I'd agree, but its real value as though you were a 1950's investor, not a 2007 investor.

I (with some friends)am looking at a sailing coastal fishing boats project now in Europe. Fuel is the big make-or-break financial factor, and taking most of that fuel cost out of the accounts makes a BIG difference.

I think most people's inertia towards using cheap fuel already means there are lots of opportunities for those brave enough to look at other ways of doing things. And it can only get better!

Unless there's someone out there who still thinks oil will be back at $10 a barrel some time soon? :-)

Anonymous said...

Excellent post. Any thoughts that the US might eventually buy into new currency, or bucket currency type idea once things get even worse as faith in the Fiat currency diminishes?

Currency is a symbol of wealth, not wealth itself, this becomes apparent once faith in the Nation becomes compromised. Inflation can destroy a nation quicker then deflation...and I see nothing to prevent an inflationary cycle--beyond job loss. Certainly unemployment, loss of wages slows the inflationary pressure--until true shortages arise or global buying power allows inflation to start snowballing in the US.

kathy said...

So here is my situation. I have a fully paid for home with 3 acres of excellent farm land, an orchard of nut and fruit trees and an apiary. I also own two building lots with good stand of cherry on them. In addition we are part owners another house and of 147 acres of timber that is due to be harvested. I have no debt and about $50,000.00 in cash with another $50,000.00 dollars in IRA's and mutual funds. I have a small income from an annuity and my husband's social security income in addtion to incime from our bees. BTW, we did this with a modest income and I have stayed home with my kids for most of the past 35 years. Frugal living payed off for us. I am thinking I should take the cash out of the bank and do something with it but what? Inertia is taking over because nothing seems like a good bet. Maybe now is the time to get the new furnace and windows. Concrete and not exciting but that kind of think has kept me solvent. I should also mention that I have a kids who is a millionaire and who has invested wisely. He is very generous and plans to support us in our dotage as we supported him while he got his business off the ground.

bureaucrat said...

For all of you following this "Libertarianism Forever" crappola, I leave you with the words of financial writer Jeremy Grantham on Alan Greenspan, who is the stupidest Libertarian ever :) ...

"Alan Greenspan receives the title of Maestro in the U.S. and is knighted by the Queen for thoroughly demolishing the integrity of the U.S. financial system. He overtly ignored the great threat of bubbles in asset classes and, in fact, encouraged them. He Ayn Rand-ishly facilitated the progressive dismantling of governmental restrictions on financial behavior, he deliberately kept real interest rates at zero for years, etc., etc., etc. You have heard it before. Now, remarkably, in his very old age he has become imbued with the spirit of Hyman Minsky: “Unless somebody can find a way to change human nature, we will have more crises.” Now he finally gets it. Too late! In his merely old age, he ignored or abhorred Minsky, and consistently behaved as though markets were efficient and the players were honest and sensible at all times. But for all of the egg on his face, the Maestro continues to consult with the rich and famous, considerably to his financial advantage. In the good old days, he would have been set in the village stocks, and not the kind you buy and sell. And I would have been right there, Alan, with very ripe tomatoes."

Jacob Gittes said...

Hey, no worries! Check out the latest feel-good story from CNN:

Lose a job, follow a dream

Getting laid off is often considered a career low point, but for some it's the ultimate opportunity.

A Quaker in a Strange Land said...

Bur:

You seem to be saying that If a Libertarian burns down a public library then ALL Libertarians are arsonists.

Get a grip, Bur. Alan Greenspan was the Chairman for 18 years, under Repubs and Dems. He was just another bureaucrat, not offense meant.

A Quaker in a Strange Land said...

Kathy:

You sound like you know how your part of the world works. And you have to have some liquidity available that is not at risk.

Please remember that I am not a "financial planner", not that I believe that "qualification" in any event.

Sounds to me like you are paying attention to your environment.

bureaucrat said...

We're all bureaucrats now :)

I can't be sure he was even FOLLOWING the precepts of Libertarianism at all during his 18 years at the Fed. It is much more interesting to ponder just how much the geeky, nerdy kid (Greenspan) who was beaten up in school would sell out to the jocks (Wall Street bankers) when they give you such praise. Would the average geek/Greenspan literally sell the country down the river just to please the Wall Street cowboys who 40 years earlier thought he was pond scum and locked him in his locker? Cause if the whole thing wasn't Libertarianism gone bad, I can't see why else he would fill the punch bowl every chance he got! The acceptance by those you idolize is a powerful force. People would do anything for that.

Dan said...

@ bureaucrat

Before you assume it was ignorance on greenspan’s part consider his essay in support of a gold standard