Tuesday, March 31, 2009

"Sell in May, and Sail Away"

There is an old stock market saying... "Sell in May, and Sail Away.  Come back in October."

Folks investing in the markets always hate October.  I LOVE Octobers.  I LOVE Septembers even more (historically, Septembers have been worse than Octobers).

Now, repeat after me:  "Buy LOW, sell HIGH".  What part of "LOW" do most investors not get?  
My crystal ball is in the shop.  That does not stop me from trying to see just a little of what MIGHT happen and how I MIGHT benefit.  I want to own stocks of companies in the energy complex at some point.  My bet is that after a couple of s**ty earnings seasons the market might have gotten softened up enough to make it safe for me to get back in the ring.  That, and a tough analyst confession season (September/October) that the year is not going to come out quite like they said it would.

I firmly believe that the American Energy Crisis is still very much in the offing - this is only a time out on the field.  The stock market will bid these companies up in anticipation of the supply crunch that I envision.  My bet is that in mid to late Q3 and the beginning of Q4 is going to be a good time to be buying these companies.  As always, I reserve the trader's right to change my mind on a dime.  I don't stand on ceremony.

This is not to say that the market could not get "there" sooner.  (I can't define "there", but I know it when I see it.)  Some good signs that "there" is here would be nationalization of the banks, local fuel shortages at the end of pipelines, Dow 5,000, etc... or any other Armageddonish event that makes people sell stuff indiscriminately.  We were close to that indiscriminate selling 3 weeks ago.  Close, but no cigar.  

In addition to energy equities, I am looking to buy Gold on ANY dips, and I have taken positions in Silver recently.  (I speak freely about commodities, as I am not a commodities broker, and so am not regulated, and it is impossible to "talk one's book" in the commodity markets to any effect.)   I am doing this even though I think the US$ is the best looking of the ugly currencies because at any time between right now and 5 or 10 years a currency crisis of BIBLICAL proportion is extremely likely.

Patience.  (I will be buying energy stocks if they break below their lows of 3 weeks ago.)  The Fat Lady ain't even got out of her chair yet (IMHO).

Mentatt (at) yahoo (d0t) com

Monday, March 30, 2009

Now That's More Like It

President Obama!!!

I gotta give credit where credit is do! I have been shouting into the wind on a pre pack bankruptcy for the Auto makers... and now, a DEMOCRAT President is taking on the job of telling it like it is and doing the right thing - stripping away all of the legacy issues KILLING the industry in a pre pack bankruptcy.

I am stunned and pleasantly surprised. I thought for sure that the administration would waste a great deal more time and effort trying to right these sinking ships.

Now, let us do what needs to be done with the Banks... and yes, I know that that is FAR more complicated and dangerous than pre paking the Auto makers. I wish them luck...

Mentatt (at) yahoo (d0t) com

The Political Chess Match

Heaven forbid anyone should gore someone's political "sacred cow"!

Have we forgotten the simple skills involved in using a calculator?  Why is it so offensive to so many Americans to lay out some simple arithmetic?

Most of Obama's plan fails under any rational examination (irrespective of how his auto plan comes in) with a $6 calculator. However, if someone says so they are a racist, a Republican, an idiot, a religious right moron, a Libertarian, (pick your boogey man) etc... Examining the numbers is not a personal attack!

We have taken our political freedoms to the extreme if we believe that we have a political RIGHT to blow up the system with ill conceived budgets, programs, and policy if the majority wishes to do so.  You can't tax and confiscate money that is not there for very long.  You CAN print it in the short term, but that ALWAYS leads to ruin.

The Left and the Right both got what they wanted, obviating the need for the continued presence of either going forward.  The Left wanted wealth redistribution to make things fair - well, the markets are doing that quite well, thank you.  Soon no one will have anything.  The Right wanted personal responsibility - I hope they REALLY wanted it, because here it comes - the pension system is going to blow up, and the true thing that people counted on - the continued extraction of pension benefits from new member's of the ultimate ponzi scheme - will no longer be possible. 

Careful what you ask for, you may just get it.

So now these groups are in shock.  They sort of get it that they don't matter in the way that they used to, but they are having a great deal of angst about it and their anger is palpable.  This goes for GM and Government workers, Feminists, Racial Leaders, Religious Leaders... sort of a "Trail Mix" bundle of political interests that had been fighting over the spoils of the status quo - but the status quo just stepped on a land mind.

If you enjoy arguing over yesteryear's issues, by all means, have at it. 

We are at the beginning of the end game in this political chess match.

I grew up in a G.M. factory town 10 miles north of the New York City border.  (Actually, it was half gritty, blue collar, factory town... and half high earning professionals commuting into the city from their beautiful suburban homes - I was from the blue collar side of town.)  I know a great many people whose lives are going through the meat grinder at the moment.  UAW as well as management.  They had lost their G.M. stock investment some time ago, and now the pension and other retirement benefits they were "counting on" appears to be at risk.  "Counting on" anything in the financial system for the long run is, I think, very poor planning.  

This story will be repeated over and over across many companies, industries, and even governments over the next decade.

Mentatt (at) yahoo (d0t) com

Sunday, March 29, 2009

New York's Massive Tax Increase

New York State has just implemented the dumbest idea since the Lead Balloon.  Rather than address the massive size of the State's services, employees, and pensions the State took the easy way out - they raised income taxes on the "Rich" - those earning $300k per year or more.

(Here's a fun fact to know:  I moved from New York to Florida primarily because of New York's onerous tax policy - that was the end of their revenues from me.  I made less money in Florida, but after taxes and other "New York" expenses, I was better off financially.  People vote with their feet.  They can move, or worse, NOT MOVE (and shake), being disincentivized from killing themselves to pay more taxes.)

People, ALL people, have an intense sense of fairness.  ALL people includes people who work VERY hard and make over $300k per year (defined as rich in New York).  No one, and I mean NO ONE, thinks that a tax bill of 50% of one's income is acceptable - while nearly EVERYONE seems to think 33% is perfectly reasonable, and this ratio seems to hold the world over.  For earners in the high tax states, the new Obama tax rates, along with state income taxes and FICA, total taxes on income will be roughly 50%.  Why is it so HARD for the liberal establishment to accept this simple metric?  Look, if you are worried about concentration of wealth... why not some confiscatory provision for net worth in excess of some ridiculous number - say $100 million?  I will tell you why:  Firstly, it won't raise enough money; and secondly it would destroy incentive to build the very corporations that are the backbone of the current confiscatory tax and destroy system now in place.  Liberals HATE business... but where, exactly, do they believe the revenues come from to fund all of their silly programs?

New York, California, Mass., and the rest of the Communist Manifesto states will be forced to renegotiate the sweetheart pension deals they gave their government workers, and renegotiate the compensation of the current government workers.  If they do not, they risk a political crisis that might well end up with serious civil unrest - and depending on the use of ORGANIZED VIOLENCE (Law Enforcement) to stop CIVIL VIOLENCE sort of defeats the purpose, no?

Earth to Governor Paterson and the rest of the Albany contingency:  This brain dead move will bring New York to default on their municipal bonds (absent a Federal Bailout) within the decade, and maybe much sooner.  

You heard it here first.

Mentatt (at) yahoo (d0t) com

Saturday, March 28, 2009

The U.S. Equity Market

The market has had one hell of a rally off the bottom, even after yesterday's stumble.  

It is hard not to look at the rally with envy.  That's OK.  I am going to continue to look at the equity market with suspicion.  On any given day I am prone to trade - short or long - but to put money to work for the medium term (I don't EVER consider the long term... too many things change), I need more time.  I don't have to get the exact bottom.  It is OK with me if I am on the right side of the market's "U" or "W" because I don't believe for a moment that we are going to have a "V" recovery in the market OR the economy.  

I'm optimistic, but I'd sure like to see the Best Buy results for next quarter before I do much more than watch this market or go fishing. Three months to go.
Now me, well I am not as optimistic... but I AM looking for an entry point on certain energy and commodity companies.  I was tempted a couple weeks ago, but not after a 20% rally.

That does not mean that the market won't trade up to its 200 day moving average - it could.  It is just that I have my doubts.  The banks are not out of the woods, housing has not shaken itself out just yet, unemployment in the U.S. continues to rise, and Asian exports are crashing. Some might argue that this is a bad as it gets, and that stock prices already reflect all of the above.  Maybe.  Maybe not.


The collapse in E & P budgets for the energy sector is going to lead to serious supply shortages in oil, and eventually natural gas ("NG").  I have long viewed NG as a career killer, but the price decline is going to leave a fantastic number of rigs rusting up in debris fields the continent over. At some point the snap back in NG price is going to be a career maker - like you read about.

Mentatt (at) yahoo (dot) com

Friday, March 27, 2009

"America Hates Wall Street"

"Memo to Wall Street:  America Hates You".

Now there's a stunner...

The REAL problem with this is that America's NUMBER ONE export is financial services - not autos, or DVD players, or IPods, etc... The Goose that Laid the Golden Egg just Laid a Turd instead... and in a few short years there will be FAR FEWER folks to hate in the financial services game.

America will just have to go back to hating lawyers.


Speaking of Lawyers...

Our nation's top export is finance and the US$.  Yet, instead of electing financiers, economists, and business people, we hired another Lawyer to oversee the greatest economic crisis the world has ever seen. (Think the 1930's deserves that title?  Consider that economic crisis frequently leads to conflict... and that in the 1930's the world was devoid of nuclear weapons... now we are SWIMMING in nuclear weapons, with nutty folks that are quite sure of circumstances in the "afterlife" now in possession.)  We did not hire him for his economic training or his business experience... WE hired him because he is good looking, well spoken, pro-choice, and black. 

Now I appreciate good looking people as much as the next guy (I think Michelle Obama provides an excellent example to American women as to what one's physique should look like in your forties after 2 kids.  Keep the sleeveless look coming, Michelle)...  After GWB, anybody that could string a couple of sentences together would be appealing...  The fact that the Choice issue dominates our politics at a time like this speaks volumes I won't even address... and being an ethnic mutt from the working class, I enjoy watching a fellow mutt make good....

What does any of that have to do with the the skill set needed to guide us through the credit/economic unwind and the shift in energy?  Not a bloody thing.  But it scripts well in our infotainment culture.  Just think, our very own "White House Reality Show".

Unfortunately, the reality of actually governing is proving a bit more difficult than campaigning and organizing in the era of youtube speeches and Yes We Can('t) rhetoric.


Ever wonder what the heck the talking heads are talking about...??  Leading economic indicators, etc... It is worth clicking the link and reading the report.

You will find the report at that link, updated in the third weak of each month.


Here's a thought for any and all "confiscate and give away" Liberals out there:

If you raise taxes, tax payers will simply resort to criminal tax avoidance.  Now, you will have to hire lots of (very conservative) Law Enforcement types to point deadly weapons at these "criminals", lawyers to defend and prosecute them, judges to judge them, and guards to guard them, etc... (I could go on forever here, right down to the children of the "criminals" that will lose a parents financial support once the system reduces their parent to penury, and all of the cycles derived therefrom).  I have not researched the number of violent conflicts arising out of poor taxing policy, but if memory serves that number is not insignificant.

The Law of Unintended Consequences applies in all things, everywhere... but especially in policy.  Just look at what the politicos from the 1970's San Francisco City Hall have done to California's economy... and now they have their sights set on the rest of us.

Mentatt (at) yahoo 


Thursday, March 26, 2009


We have had one heck of a run in the equity markets.  Lots of optimism.  Bear Market rallies are like that.

I was talking to the Mad Scientist this morning... he thinks the rally has more legs.  Maybe so.  Just keep in mind earnings season is just around the corner, and confession season is right on top of us.  The data might be telling someone that the market should go higher, and the market is always right (if you disagree with the market that is OK, just get out of its way - don't fight it, you can't win)... but if you missed the wedding don't go to the funeral.  


We are losing our freedoms at a hundred miles per hour.  Our country used to be a nation of laws (at least in concept).  Now it is a nation of REGULATIONS.  

We don't vote for Regulator.  We can't appeal a Regulator's decision easily.  Our educational system has indoctrinated the masses to accept this - and here we are.  

Mentatt (at) yahoo 

Wednesday, March 25, 2009

Obama and the Tax Code

The POTUS has asked Paul Volker to over see an overhaul of the tax code.

None of the reports have suggested that the code be made easier to comprehend, comply with, etc... All of the reports seem to suggest this is a revenue "enhancing" agenda.

What a shame. The POTUS continues to blow opportunity after opportunity. Given the outrageous, and as it turns out, false promises he made during the campaign (look, I don't blame him... that is what works) he needs to finds something GREAT to do. Cutting the Gordian knot that is the 29,000 pages of tax code and that turns every honest American into a potential tax "criminal", this is an opportunity that should not be missed.


I get a lot of email from people asking me why Libertarianism is such a political failure in the U.S.

Think about it. Libertarian candidates would not be willing to reward their supporters with taxpayer's money!! That is the definition of Libertariansim. Less (and less expensive) government.

This is a sad indictment of our body politic.

I used to work in campaign politics in another lifetime. Once I realized this I went into business.

Mentatt (at) yahoo

Tuesday, March 24, 2009

China Proposes doing away with US$ as World Reserve Currency

It is coming at us hard and fast now...

The Head of The People's Bank of China called for a new World Reserve Currency to replace the US$.  

Think back 2 or 3 weeks... Hillary Clinton was in China, meeting about our "mutual interests"... the fact the China holds over $1 Trillion in U.S. debt and is rightly concerned about the mathematical certainty that our total debt/GDP will TRIPLE in 10 years and that that cannot be supported (and there is no way to stop it).  Hillary came out of mission "all smiles", called the boss and told him "all is well... they are going to keep funding us... (hehehehehehehe lolololo).

Now this.

Somebody forgot to tell the Chinese to stick to the script.  The Chinese do NOTHING by accident.  EVERYTHING is well scripted.  This was a message, maybe even the message.

So what did our fearless leaders do?  

They went into denial.

I expected nothing less.  

The real question is:  Will you go into denial?

Good Luck!

Mentatt (at) yahoo

Grasping at Straws

I got an interesting email from a reader that felt the economic problems were caused by people like me, and that if only I (and others) were not so negative everything would come around.

Dear Sir:

You cannot imagine how much I want to be positive. I own a brokerage firm. I manage a hedge fund. We have ceased taking new money because of my "negative view", and business is down BIG because of my negative view... Believe me, I want to be positive (Or, I want to be "short", but I am terrified that if I go short the NEXT DAY the Feds will monetize all of the outstanding U.S. debt, and I will get wiped out...).

This guy said it best:

“When you’re buying equities, you’re buying a stream of earnings and current
earnings are in freefall,” said Douglas Cliggott, the Greenwich,
Connecticut-based manager of the $81 million Dover Long/Short Sector Fund, which
beat 97 percent of its peers last year. “We haven’t hit bottom yet.”

Not to mention... Geitner and Bernake are not asking for these unbelievable powers from Congress becasue they don't think they will be taking over the big banks.

Did I mention that the Fed is not engaged in quantitative/qualitative easing because the sun is shining over our shoulders, the grass is green, the flower's grow and life if so gay, hurray, hurray!? (from the "Funny Farm".)

I think earnings and confession season along with guidance, which is only weeks away, is going to scare the living s**t out of investors. I think the market will bottom this year, maybe next September or October, and it will be pretty bad - so bad you won't want to touch it with a ten foot pole.

This just hit the tape:

"Krugman says big banks to be siezed."

Energy will be the place to be, and that sector was looking mighty attractive last week before the rally.

Patience. Opportunity is coming, and its got nothing to do with optimism. And forget what TPTB have to say. Watch what they do, and what further powers they ask for.

Mentatt (at) yahoo

Monday, March 23, 2009

Long in the Tooth, II

The posting has been light as I have been on vacation. What a time to take a few days off... the market has its best 10 day rally in decades...

This has been some rally. Bear market rallies are wonderful - provided you are not "short". This rally is not being driven by new money coming into the market... it is being driven by shorts that, at the moment, look like the mirror borne aftermath of a bad zit.

My bet is this rally is coming to the end of its useful life. That does not mean it won't go higher. It probably will. But this won't go on much further. Use this as an opportunity to lighten up on equities. Inflation will eventually rear its ugly head... but not just yet.

Some very smart folks, like Mark Mobius, disagree with me. But...

While U.S. bank stocks have climbed this month, bonds of the companies yield
8.55 percentage points more than Treasuries, about the widest in 13 years,
according to Merrill Lynch & Co. indexes. The gap between yields of
financial institutions’ bonds and Treasuries widened even as their shares
jumped, suggesting this month’s record rally in financial stocks is in jeopardy.
The S&P 500 Financials Index has surged 48 percent from its March 6 low.
And that is why I will stick with corporate bonds over equities for corporate exposure.


The Federal Reserve and the U.S. Treasury just pulled the rip chord, and the U.S. markets rallied nearly 7.5%. This is a great teaching moment. I have NOT been short equities, because I had no faith that our government would not be willing to do anything to inflate the markets - and now they have. I ceased being long equities, for the most part, as I had no faith that the government's attempts will actually work. Governments can issue unlimited amounts of paper. They cannot issue unlimited amounts of Oil, Corn, Gold, and Wheat.

The Fed has begun to monetize the nation's debt, and the Treasury is going to keep the Zoombie banks alive no matter what. These actions are going to have some very interesting unintended consequences, though at the moment we can't be sure of that they will be. But trust me - they WILL be.


Lastly, though our political leaders are all smiles and "confident" in their plan's success, I am sure they have contingency plans... or at least a Plan B.

I wonder what that is?


Good luck!

Mentatt (at) yahoo

Saturday, March 21, 2009

Recovery? Recover to What?

In my line of work, I get this question a great deal - especially lately. "When do think a "recovery" will begin/start/take hold...?"

I don't expect any kind of "recovery" that any person old enough to remember the last recession (in real terms) would recognize. Expansion of consumer debt, mortgage debt, industrial output, loan securitization, Oil consumption, ertc... WILL NOT "recover" - i.e., grow in real terms from here.

Aggregate travel, whether for business or pleasure, will contract from now on. So, too, vehicle production, advertising, retail space, and shopping as entertainment. Speaking of entertainment... the family budget for that endeavor will shift dramatically - from endless expenditures on infortainment to simpler accessories - like a ball and glove.

I was a child in the 1960's. After moving to the burbs I remember being a 1 car family (7 kids, we walked everywhere - and we lived 2.5 miles from town and the train station that led to Manhattan), vacations were at my grandmother's tenement in South Philly, we had 1 phone line (long distance calls only on Saturdays, with the family gathered around the phone to talk to our HUGE extended family), rabbit ears T.V. (6 channels, WPIX had the Yankees and WOR had the Mets - these were the only necessary stations as far as I was concerned), and was 16 inches (tops). We had 3 bedrooms and 1 bathroom, so their wasn't much of an expectation of privacy, except for my sister... By 2020 most Americans will be living in small homes, with ONE car, lots of walking, and modest consumer infotainment...

We are going back to 1960, not 1999 (the GOOD news is that we are not going back to 1910, when the average American took one bath per week and deodorant had not been invented yet). There is absolutely no shot that we are going to "recover" to the late 1990's. This not a terrible thing, but it does mean that certain business and investment activities and ventures are fool's errands.

It will be generations before Western consumers are inclined to spend 110 % of their income.  It will prove impossible to re-inflate in this environment without taking on significant risks in over doing it, and it appears that, at the moment, the Federal Reserve is willing to take that risk.  The problem for us is figuring out whether or not they will follow through - or get cold feet.  Neither path is without its benefits and drawbacks.

And "at the end of the day"...

The Fed does not take into consideration OIL, for reasons that are unfathomable to me... not that doing so would lead them to the correct decision, either...

But just click this link and scroll down to table 1.  Notice that while gross imports fell 6% year over year to date, net imports are fell only .6%.  That is because the U.S. imports OIL from and exports products (gasoline & diesel) to MEXICO, and the U.S. has decreased its exports to Mexico by the amount of the difference.  MEXICO is close to collapse; the CIA and DOD both say that the risk of MEXICO devolving into a failed state is the U.S. foreign affairs' greatest risk at the moment.  Because MEXICO needs U.S. currency, it will export its OIL.  Because the U.S. would find itself near collapse if it had back to back declines in NET imports of 7% or 8% in 2008 AND 2009, the U.S. is incapable of exporting to Mexico what it had in the past.

How this little conundrum works out should prove very interesting.

Mentatt (at) yahoo (d0t) com

Friday, March 20, 2009

"The Brokest Generation"

Any of my readers care to take this guy to task?

The Brokest Generation
Our kids are the ultimate credit market, and the rest of us are all pre-approved!

By Mark Steyn

Just between you, me, and the old, the late middle-aged, and the early middle-aged: Isn’t it terrific to be able to stick it to the young? I mean, imagine how bad all this economic-type stuff would be if our kids and grandkids hadn’t offered to pick up the tab.

Well, okay, they didn’t exactly “offer” but they did stand around behind Barack Obama at all those campaign rallies helping him look dynamic and telegenic and earnestly chanting hopey-hopey-changey-changey. And “Yes, we can!”

Which is a pretty open-ended commitment.

Are you sure you young folks will be able to pay off this massive Mount Spendmore of multi-trillion-dollar debts we’ve piled up on you?

“Yes, we can!”

We thought you’d say that! God bless the youth of America! We of the Greatest Generation, the Boomers, and Generation X salute you, the plucky members of the Brokest Generation, the Gloomers, and Generation Y, as in “Why the hell did you old coots do this to us?”

Because, as politicians like to say, it’s about “the future of all our children.” And the future of all our children is that they’ll be paying off the past of all their grandparents. At 12 percent of GDP, this year’s deficit is the highest since the Second World War, and prioritizes not economic vitality but massive expansion of government. But hey, it’s not our problem. As Lord Keynes observed, “In the long run we’re all dead.” Well, most of us will be. But not you youngsters, not for a while. So we’ve figured it out: You’re the ultimate credit market, and the rest of us are all pre-approved!

The Bailout and the TARP and the Stimulus and the Multi-Trillion Budget and TARP 2 and Stimulus 2 and TARP And Stimulus Meet Frankenstein and the Wolf Man are like the old Saturday-morning cliffhanger serials your grandpa used to enjoy. But now he doesn’t have to grab his walker and totter down to the Rialto, because he can just switch on the news and every week there’s his plucky little hero Big Government facing the same old crisis: Why, there’s yet another exciting spending bill with twelve zeroes on the end, but unfortunately there seems to be some question about whether they have the votes to pass it. Oh, no! And then, just as the fate of another gazillion dollars of pork and waste hangs in the balance, Arlen Specter or one of those lady-senators from Maine dashes to the cliff edge and gives a helping hand, and phew, this week’s spendapalooza sails through. But don’t worry, there’ll be another exciting episode of Trillion-Buck Rogers of the 21st Century next week!

This is the biggest generational transfer of wealth in the history of the world. If you’re an 18-year old middle-class hopeychanger, look at the way your parents and grandparents live: It’s not going to be like that for you. You’re going to have a smaller house, and a smaller car — if not a basement flat and a bus ticket. You didn’t get us into this catastrophe. But you’re going to be stuck with the tab, just like the Germans got stuck with paying reparations for the catastrophe of the First World War. True, the Germans were actually in the war, whereas in the current crisis you guys were just goofing around at school, dozing through Diversity Studies and hoping to ace Anger Management class. But tough. That’s the way it goes.

I had the pleasure of talking to the students of Hillsdale College last week, and endeavored to explain what it is they’re being lined up for in a 21st-century America of more government, more regulation, less opportunity, and less prosperity: When you come to take your seat at the American table (to use another phrase politicians are fond of), you’ll find the geezers, boomers, and X-ers have all gone to the men’s room, and you’re the only one sitting there when the waiter presents the check. That’s you: Generation Checks.

The Teleprompter Kid says not to worry: His budget numbers are based on projections that the economy will decline 1.2 percent this year and then grow 4 percent every year thereafter. Do you believe that? In fact, does he believe that? This is the guy who keeps telling us this is the worst economic crisis in 70 years, and it turns out it’s just a 1 percent decline for a couple more months and then party-time resumes? And, come to that, wasn’t there a (notably unprojected) 6.2 percent drop in GDP just in the last quarter of 2008?

Whatever. Growth may be lower than projected, but who’s to say all those new programs, agencies, entitlements, and other boondoggles won’t also turn out to cost less than anticipated? Might as well be optimistic, right?

Youth is wasted on the young, said Bernard Shaw. So the geezers appropriated it. We love the youthful sense of living in the moment, without a care, without the burdens of responsibility — free to go wild and crazy and splash out for Tony Danza in dinner theater in Florida where we bought the condo we couldn’t afford. But we also love the idealism of youth: We want to help the sick and heal the planet by voting for massive unsustainable government programs. Like the young, we’re still finding ourselves, but when we find ourselves stuck with a medical bill or a foreclosure notice it’s great to be able to call home and say, “Whoops, I got into a bit of a hole this month. Do you think you could advance me a couple of trillion just to tide me over?” And if there’s no one at home but a couple of second-graders, who cares? In supporting the political class in its present behavior, America has gone to the bank and given its kids a massive breach-of-trust fund.

I mentioned a few weeks ago the calamitous reality of the U.S. auto industry. General Motors has 96,000 employees but provides health benefits to over a million people. They can never sell enough cars to make that math add up. In fact, selling cars doesn’t help, as they lose money on each model. GM is a welfare project masquerading as economic activity. And, after the Obama transformation, America will be, too. The young need to recognize that this is their fight. They need to stop chanting along with the hopeychangey dirges and do something more effective, like form the anti-AARP: the association of Americans who’ll never be able to retire."

He has one hell of a point.

My favorite of his points is G.M. "has 96,000 employees but provides health benefits to over a million people... GM is a welfare project masquerading as economic activity."

We have had a sharp, bear market rally in world equity indexes for the past 2 weeks (I have no idea as to whether it has run its course or died yesterday). None of the data supports the idea of a new and sustained market/equity asset prices appreciation round.

The CBOE just said that the Emperor has no clothes, and that the U.S. will have $Trillion+ budget deficits for the next 10 years. Wanna know why they did not say 15 or 20 years? Because it won't even matter at the end of 10 years; no point worrying about it after a few years.

Good Luck!

Mentatt (at) yahoo (d0t) com

Thursday, March 19, 2009

Constraints vs. Restraints

The following is a guest post by a long time reader and commentator, "oOOo" (should the author wish to reveal his true name rather than his "nom de plume" is left to him in the comment section, and I will amend the post to reflect this). 

While I am a hardcore Libertarian and might not agree with everything that people reading and commenting here at the American Energy Crisis, I will always happily post a well reasoned and thoughtful insights.

So, without further ado, I give you "oOOo":

"Constraints vs. Restraints

Let's start with some definitions. I won't repeat the ones in the dictionary but for the sake of this post, essentially constraints are limits or forces acting on something, but they are variable and it is possible to overcome them. A restraint is a fixed fundamental limit that cannot be altered. If we take the example of the government being faced with constraints and restraints, they have been elected to overcome anything in their path, "Yes we can!" but actually, there are things they cannot do.

You only have to look at nature to understand what is going on. Day follows night, spring follows winter. The tide goes out before coming back in again. Death follows life, before the cycle can go on and things can be reborn anew. The dynamic balance of opposites, change and the cycles of time are inevitable and essential for continuity.

Within this closed system we call Earth, infinite growth is an impossibility, UNLESS you allow things to take their natural course. A cherry tree blooms and then dies and after falling to the ground, the blossoms return to the soil and become nutrients for the surrounding environment. Through it's death, every last particle contributes in some way to the health and continuity of its own thriving ecosystem.

In the world we live in, particularly the world of politics, failure is not allowed, everything is done to prevent it, so things grow to extremes before being put on life support and eventually dying anyway. Politicians focus on watering a dead plant rather than allowing it to die and planting new seeds. They focus on their short-term ability to deal with constraints, rather than the long term geological restraints all of us are essentially restricted by. This focus on specific constraints pushes us into Hegel's dialect, whereby they present a part of the problem, which they can then maneuver into a solution of their own making, usually for their own benefit.

The resources of the world are running out, with top soil depletion, oil, coal, gas, fresh water, fish populations, etc…, etc…, all are being pushed beyond their limits to try to sustain an unsustainable system. We all need the necessaries of life to the same extent, thus things, which are equal to the same thing, are also equal to one another. We are all subjected to the same fundamental laws of mathematics. The ridiculous notion of endless growth for the sake of short-term profit for a few, is sacrificing our chance of long-term continuity. Unless the arrogance and egotism of man, which has helped build up such a fantastic, but complicated and fragile interdependent system, is put aside and instead changed into one of understanding of our true nature and position within the greater picture, the course we are on will lead to disaster.

In order for humans to survive and prosper, the politicians and business leaders of the world must first admit there can be no more business as usual, they must accept the restraints we are all subjected to, of physical limitations to continued growth in a closed system and that the only option is to downsize everything. Instead they focus on constraints, which allow them to prescribe remedies and keep up appearances in order to maintain the illusion that they are in control of things. By admitting to their inability to control forces bigger than themselves, they would help a transition into a more sustainable future and encourage people to take control of their own affairs.

Now, will this happen? In the words of Jeffers, not a f@#cking chance, because it shifts power from the government and companies into peoples own hands.

So where does that leave us?"

Thank you "oOOo"!

Mentatt (at) yahoo (d0t) com

Sunday, March 15, 2009

"Recession Gardens"

Image courtesy of oOOo.

This was front page on Yahoo Finance tonight:

"Dollars from dirt: Economy Spurs Home Garden Boom."

With the recession in full swing, many Americans are returning to their roots -- literally -- cultivating vegetables in their backyards to squeeze every penny out of their food budget.
Industry surveys show double-digit growth in the number of home gardeners this year and mail-order companies report such a tremendous demand that some have run out of seeds for basic vegetables such as onions, tomatoes and peppers.

"People's home grocery budget got absolutely shredded and now we've seen just this dramatic increase in the demand for our vegetable seeds. We're selling out," said George Ball, CEO of Burpee Seeds, the largest mail-order seed company in the U.S. "I've never seen anything like it."

Gardening advocates, who have long struggled to get America grubby, have dubbed the newly planted tracts "recession gardens" and hope to shape the interest into a movement similar to the victory gardens of World War II.

Those gardens, modeled after a White House patch planted by Eleanor Roosevelt in 1943, were intended to inspire self-sufficiency, and at their peak supplied 40 percent of the nation's fresh produce, said Roger Doiron, founding director of Kitchen Gardeners International.

Doiron and several colleagues are petitioning President Obama to plant a similar garden at the White House as part of his call for a responsible, eco-friendly economic turnaround. Proponents have collected 75,000 signatures on an online petition.

"It's really part of our history and it's part of the White House's history," Doiron said. "When I found out why it had been done over the course of history and I looked at where we are now, it makes sense again."

But for many Americans, the appeal of backyard gardening isn't in its history -- it's in the savings.

The National Gardening Association estimates that a well-maintained vegetable garden yields a $500 average return per year. A study by Burpee Seeds claims that $50 spent on gardening supplies can multiply into $1,250 worth of produce annually.

Doiron spent nine months weighing and recording each vegetable he pulled from his 1,600-square-foot garden outside Portland, Maine. After counting the final winter leaves of Belgian endive, he found he had saved about $2,150 by growing produce for his family of five instead of buying it.
Well, I guess it is not just rural Tennessee that is seeing this reaction.  

For me, it is a personal relief:  Several years ago while doing research on the energy complex, other data points kept cropping up in the literature. After further consideration, in addition to my view that the energy complex would be unable to meet its projections I came to the conclusion that:

  1. The banking system was going to blow up.
  2. The food supply system might not have the necessary redundancies.

 I met with friends, clients, and prospects and told them of my thoughts... and people thought I had flipped my wig.

Since then the banking system blew up, and it is now conventional wisdom that we will have to move away from imported Oil, one way or the other.  But food... food was a given.  That was 3 years ago.  I guess a lot has change since then.

I do believe that people are growing more of their own food.  I do not believe that the reason they are doing so is solely for economic reasons.  My best guess is that there has been enough internet chatter about how utterly dependent we are for the very food we eat on a very complex system that could very well come unglued for any number of reasons at any time - crop failure, currency failure, drought, energy shortages, etc... that the idea of food security as well as personal economic security has worked its way into the national mindset.

70 years ago people were thin (actually, 30 years ago people were still thin - none of the kids I went to college with were significantly overweight... I don' think that is true today), food was expensive, and people knew where their food came from - with many producing a significant amount on their own.  In one lifetime we went from an Agrarian/Industrial society to a consumer society... and in the last 6 months many of us looked down and realized (Holy Sh-t!) we were working without a net.

This is unbelievably good stuff.  We don't need to grow all of our own food.  If the average person grew 10% of their food, and did it in an organic and "sustainable" way, and if local producers contributed a further 10% (I am just guessing at the numbers, but you get the point) the risks to the system would be greatly reduced.

Yours for a better world,

Mentatt (at) yahoo (d0t) com

Saturday, March 14, 2009

No Time to Get Happy

The market had a great week.  In my judgment this is nothing more than a short covering, technical rally.  That does not mean it can't be a ripper, but in my opinion you must use it to SELL equities, not buy them (90 day Treasury paper is not a bad idea here).  I have been selling WAY out of the money puts on weakness -  but I am a professional - and they expire next week.  Plus, when I am wrong, I am gone.  My bet is we are going lower.  I know I said before that I give a 80% probability that the Dow holds 6,000 and the S & P holds 650... I retract that. Given the data and the earnings picture for the coming quarter reporting season, I think Dow 5,000 and S & P 550 is more in order.  That is what it would take to make me think that U.S. equities were cheap, and of course the data can change my mind for me.  This does not mean that the U.S. equity market won't be considerably above its lows at the end of the year - I think that is very possible (I won't use the word likely until I get more data).  I simply think you don't need the aggravation of trying to catch a falling knife.

Keep in mind that if the S & P does bottom on X date at 550 that half the sectors will bottom before X date and half will bottom after (to deny this means you are suggesting that all sectors will bottom on the same day).  My bet is energy will bottom on the front side of X date.  But for now, I would not be a hero.

The thing that keeps me up at night is the Pension System.  Talk about a Ponzi Scheme - nothing could better describe the U.S. Pension System  This has all the makings of a surreal political crisis.

I hate to be negative. I have been negative for so long, and I hate it.  But ignoring the data in favor of optimism for optimism's sake is just plain silly.  Besides, I don't work for CNBC.  


I am "down on the farm" in Tennessee at the moment.  I spent the afternoon being depressed by the guys down at the local farmer's cooperative.  People here in rural Tennessee are broke, and their food assistance program dollars are not enough to get by.  So gardens, backyard chicken flocks, rabbits, and dairy goats are breaking out everywhere in Wilson County Tennessee.  People are buying seeds, gardening equipment and the equipment shop at the co-op is backed up 3 weeks with folks bringing in their garden tillers and other equipment they have not used in years, according to my friend there.

As I was listening to this I was reminded of Dmitri Orlov's "Reinventing Collapse".  That guy is a bloody genius, although I doubt he is the kind of genius we were hopping for.  It seems that Orlov was essentially correct, that the collapse would occur one individual at a time.  It seems that for a great many individuals here in rural Tennessee, the collapse is here.

Tomorrow I will be going to a local farmer's "flea market".  This (if you are from New York or L.A. or Miami) you gotta see.  The biggest seller is/are "layer" hens - chickens already old enough to be laying eggs.  A good layer will give their owner 5 eggs per week, and after 3 years the hen can be consumed as a "stew chicken" (too old to be anything but soups and stews).  

Besides chickens you will find pigs, goats, sheep, emus (yes! emus!), llamas, alpacas, etc... it seems everything except cattle.  The locals buy these and slaughter them at home or have them slaughtered.  Chest freezers are very popular here.  If I can, I will take some pictures.

Good Luck,

Mentatt at yahoo dot com

Thursday, March 12, 2009

Dropping Hints

The folks that "control" the financial system simply can't/don't step up to the microphone and say what they really think - if what they really think might scare the begeezus out of people and make things worse.

They speak in tongues. They drop hints.

When you hear the U.S. Treasury Secretary saying things like "this will take a worldwide coordinated effort", or that the G20 nations will need to take "forceful" action, and (my favorite) when Geithner proposed "expanding" the IMF's balance sheet by $500 billion...

This stuff is the "truth" between the "fluff" and "puff" pieces of propaganda. Warren Buffet's piece in the Wall Street (while VERY patriotic), Jamie Dimon's "belief in America", Larry Kudlow's silly rants on CNBC... what else should the very folks that have reaped substantially ALL of the benefits of our system say? That it is horribly broken? NAFC. They know that it is all about confidence, and we don't have much of that anymore.

And actually (I know I am not supposed to start a sentence, let alone a new paragraph with "And", but this is my blog, so I can make up the literary rules here) the SYSTEM is not broken. What has been broken are the habits and actions of the PEOPLE that benefited asset prices, credit expansion, capital aggregation, etc... like Humpty Dumpty, that part of the equation will prove far more challenging to put back together.

This just isn't the time for individual investors to be buying equities. Disciplined traders and professionals MIGHT make profits here - and they might not - but for the little guy at home, the time just ain't here yet (of course now that I just jinxed myself we are going to have a 25% rally). Now is the time for commodities and bonds (and not just any bonds). If you must buy equities look for low debt to equity, good cash flow, and dividends.


This just in from the New York Times: This Is Not A Test.

Meanwhile, the Republican Party behaves as if it would rather see the country fail than Barack Obama succeed.
That is what is known as being STUNNINGLY hypocritical. This began under Clinton, hit new levels with Bush, and will end soon, but only because the Left and the Right do not matter anymore. They are both under the false impression that because they are still being broadcast on T.V. that they do matter. Sorry, guys, but that is just an illusion. Your power came from money that is no longer there. People keep comparing the recent economic event to Pearl Harbor. Wrong War (or should I say "Wrong Battle"?). This is the Summer of 1914, and the Arch Duke just got shot, and the only World War there ever was (The War started in Summer of 1914, stayed hot until 1918, enjoyed a 20 year or so armistice, and got hot again in 1938 for another 7 years. The I and the II are best described as rounds in a fight) just might get its sequel - at least if these 2 false prophets keep speaking into the microphone.

You heard it here first.

The Left will disintegrate. The Right will bifurcate into "Fascists" and "Libertarians". If history shows us anything it is that it only takes a small, committed group of guys with steel in their b---s to bring about massive change. That pretty much leaves the Left out (spare me about the Communists. They were Fascists in drag. Feel free to point out to me which issues the Left would be willing to shed blood over.).

This has nothing to do with what I WISH will happen, or what I HOPE will happen. I just call them as I see them.

Good Luck!

Mentatt (at) yahoo (d0t) com


Tuesday, March 10, 2009

Frugal Is In (Again)

I am not embarrassed to admit that I am frugal.  

Even in my best earning years, I always drove an inexpensive vehilce and lived in a home that was well within my means (with the exception of my first house when I was young and newly married - even frugal guys can make mistakes).

So I get positively aroused when I see articles like this on the FRONT PAGE of MSNBC.

NEW YORK - Amy VanDeventer has always been a cheapskate. The recession is taking her to new extremes.

Before the economy tanked, she was still wearing maternity clothes from her last pregnancy, clipping coupons and using hand-me-downs to dress her daughters, ages 2 and 3. Now, she's salvaging bagel scraps left on their plates for pizza toppings and cutting lotion bottles in half so she can scrape out the last drops.

"I was already cheap," said VanDeventer, a 36-year-old mortgage loan underwriter from Broomfield, Colo. "Now I am neurotic about it."

If you thought those cheapskate friends and relatives couldn't pinch pennies any tighter, think again. The recession is making tightwads like VanDeventer cut back even more. They're going way beyond sharpening their coupon scissors, replacing already cheap store-brand fabric softener with vinegar and even making their own detergent. VanDeventer was drying her hair in front of a fan after her portable hair dryer broke — until her friends bought her a new one.

The recession is radically changing behavior among many different types of people, from the Wall Street bankers who are now waltzing into Wal-Mart for the first time to buy their groceries to teens who are now thumbing through the piles of status jeans at secondhand shops to save money. And experts say that such behavior could linger long after the economy recovers.

What surprises frugality bloggers is that many cheapskates such as VanDeventer haven't lost their jobs and are not in danger of losing their homes. Many have stashed a good chunk of cash away. But the economic uncertainty is catapulting them to new levels of thriftiness.

"I do it out of fear because I would rather put that money in the bank or purchase something we really need," said VanDeventer, who now saves about 50 percent of her take-home pay, up from 25 percent before the recession began more than a year ago.

The trend is disturbing for merchants, who are already reeling from the sharp pullback by spenders. Such extreme miserly behavior could only worsen the decline in consumer spending.

"Frugal people are now looking at more ways not to spend money," said Lynnae McCoy, who runs a blog called beingfrugal.net, which attracts seasoned penny pinchers. In January, her site received 110,000 hits, up 30 percent from a year ago. What intrigued McCoy was the interest among frugal folks to save even more money by making their own detergent and other household goods.

Elizabeth Schomburg, a credit counselor from Roscoe, Ill., is now replacing store brand softener with vinegar in her laundry. The 31-year-old, who used to comb the 80 percent off sales racks, said she has stopped doing any "recreational buying."

"I am questioning every single purchase," she said.

She's also not stockpiling discounted groceries because she wants to limit how much money she puts out for each trip to the supermarket. That kind of behavior is showing up in fourth-quarter results at companies including foodmaker H.J. Heinz Co., whose sales suffered as consumers are cleaning out their cupboards before buying new items.

Jeff Yeager, author of The Ultimate Cheapskate's Roadmap to True Riches, sees a silver lining to the economic downturn.

"Whatever you do to simplify your life is a good thing," Yeager said. A self-proclaimed cheapskate, he has spent no more than $100 over the past five years on clothing for himself and won't throw anything out until it literally falls apart.

But he's found ways to cut back even more now, such as eating more lentils — which are cheap and nutritious — and biking more to save gasoline. His mantra for buying food? Buy not what you want, but what's affordable at the time.

Unlike many big spenders during the boom years, he says he and other cheapskates are "sleeping easy" these days.

They're also getting some respect from the spenders, who even just a few months ago mocked their thrifty ways.

"My friends used to laugh at me," said Jodi Furman, referring to her obsession with 70 percent off sales and her knack for saving money with coupons.

They're not laughing now. The mother of three from Lake Worth, Fla., parlayed her knowledge into a blog called neverpayretailagain.net last fall. The blog helps shoppers save money on fashionable clothing and healthy food.

"If you can't make more money, then you can spend less — and that's the equivalent of making more money," Furman said.

While she doesn't scrape pizza crumbs or make her own detergent, Furman said she's "laser-focused" when it comes to saving on groceries. She's saving 60 percent to 70 percent off her grocery bills. On a recent trip to Winn-Dixie, she scooped up $63.50 worth of groceries for $16.45. She picked up a box of TLC Cereal bars, regularly priced at $3.99, for $1 — it was on sale for $3 but she used a $2 coupon. She got a $3.99 package of Equal sweetener for free — combining a coupon with the sale price.

Many people are embracing the new challenge of squeezing the most value out of every last penny. Who knew you could make household products such as detergent? McCoy says it's not hard: mix Borax with a half bar of soap, baking soda and its relative washing soda, which cuts grease and can be found in the laundry areas of many supermarkets.

"If you have vinegar, Dawn soap and baking soda, you can pretty much make any cleaning product," McCoy said.

Well!!  That just warms my cheap little heart.

But it won't warm the economy's heart.  "Savings" is merely "Under-Consumption".   People that save do not need CREDIT (trust me on this. Rather than live in a McMansion, I live in a modest home that I paid for outright.  I drive an 8 year old F-150 when I must drive, but mostly I bicycle around town.  My wife drives a 4 year old Ford minivan.  Ergo, no car payments.  No mortgage payments, and because the house is inexpensive my property taxes are no more than a nuisance (we prefer to spend our money on private school tuition for our 2 boys and eventually for our little girl).  I recently had lunch with an investor in my fund that was amused by my ugly truck and my 3 legged dog that I bring everywhere.  He told me later his first thought was that I did not look very successful, (he noticed that I was not wearing a watch and when I told him I don't OWN a watch (we don't wear or own any jewelry) he looked somewhat peptic) but after some thought he told me that I probably would not need to steal from him, a la Madoff, to support my "opulent lifestyle"...  Sharp guy!  As far as my 3 legged dog... She moved in with us 6 years ago, she is not sensitive about her disability, and gets around as well as any other dog.  I get my dogs at the pound.  For $65, which includes neutering, you get as good a dog as any fancy breeder, though in my case - a leg short).

The U.S. economy has come to depend on consumers that spend 110% of what they make.  If those same consumers spend 90%, businesses that depended on the consumer are going to be in a world of hurt for year to come.  

This is not a bad thing.  It is actually very curative.  Unless you are a retailer.


Bear Market Rally's are the best feeling you can have with your clothes on.  We might be having one right now.  Trade it.  Just don't believe it.  



What would really be helpful is to know just how long we are going to be in this deflationary spiral.  

Good Luck!

Mentatt (at) yahoo (d0t) com


Coming Around to Reality

I have been complaining loudly that Wall Street and the Bush and Obama Administrations have all under-forecast the unemployment coming at the U.S.

Remember, these guys cannot come out and say what is really on their minds.  They can't serve 2 masters:  Truth and their paycheck.  9.4% unemployment?  In their f$#%@!! dreams!  The REAL number, including under-employed and discourage workers no longer seeking employment will be 17 to 20%.  When last reported (for last month) that figure stood at 14.8%.  That is the REAL UNEMPLOYMENT RATE.  That is the statistic that SHOULD be compared to the 1930's unemployment data.  The thing with our society and all our special interest groups is that we have learned to SPIN, OBFUSCATE, and DECEIVE ourselves into believing anything, and that if we scream it loud and often enough (Yes We Can!), well, it will make it so.

Sorry.  NAFC.

Mentatt (at) yahoo (d0t) com

Monday, March 9, 2009


U.S. Companies are cutting the dividends they pay shareholders at an alarming rate.  

There is NO OTHER REASON to own a stock.  Growth??!!  What a f*****g joke!  Stocks were, at one time, valued as the present value of all their future dividends.  Then came the liquidity driven rally of of the 1994 - 2008 period, and the rest was history.

If my Dow 6,000 holds, it will only be for a rally, after which I would be happy to see 5200 hold.  If the rally comes, use it to sell.  Perhaps I am overly gloomy, but with American households' losing $7 Trillion LAST QUARTER ALONE ($20 Trillion since the recession began) it is hard to see how the $2+ Trillion in government money printing can be terribly inflationary.  That would argue for an even stronger US$.


Home prices continue to decline.  Prices in China fall for the first time since 2002.  World Stock prices fall 7 % last WEEK...

America's five largest banks, which already have received $145 billion in taxpayer bailout dollars, still face potentially catastrophic losses from exotic investments if economic conditions substantially worsen, their latest financial reports show.
IF??!!  If your Aunt had a frank and some beans, she'd be your Uncle.

If you think people are in a mood to save now, wait till we tell them that their pension fund is under water or has defaulted.  It is pretty tough to grow an economy losing $20 Trillion of wealth AND going from ZERO to 10% savings rate.

With the exception of Oil prices, deflationary forces are flowing across the planet - not just the U.S.  Ergo, no U.S. stimulus "whateveryouwanttocallit" is going to do anything more than act as airbag in a car traveling at 100 MPH into a brick wall.

My apologies... deflationary depressions make me grumpy.


Despite all of the talk of "getting banks lending again" or "getting credit going again" there is simply NO WAY to re-inflate the U.S. economy in the next 2 or 3 (0r 4) years.  None. Zip. Zero. Nada. Bupkis. Ugatz. Not even a little bit.  The reason the guys in Washington can't bring themselves to admit this is that it means absolutely, positively that the U.S. banking and financial services sector must SHRINK fairly dramatically over that time frame, and in terms of payroll the sector is our biggest (healthcare is a bigger part of GDP).  Just how does a country so dependent upon the export of its financial services industry avoid massive unemployment in the scenario I just drew?  

You got me.

And just what are we going to do with a bunch of newly minted suspender wearing, wing tip tapping, hermes tied, bottle service swilling MBA's with $300k in student loans? Think they will be happy going back to school to study Air Conditioning repair at IT Tech?

This ought to be good.

Mentatt (at) yahoo (dot) com  

Sunday, March 8, 2009

Gone Missing

Someone commented recently that they prefer my economic and resource analysis to my political analysis.  

I prefer my economic and resource analysis, too.

The political landscape will dictate the economic and resource issues, and that landscape has yet to feel the effects of $35 Trillion in wealth gone missing.

If you think we had "change" in this recent election, you ain't seen nothing yet.  Just wait until the resource constraints rear their ugly head in earnest.  For decades the politics of the U.S. was really about waging war with each other to gain access to that "wealth", the "issues" were just side shows to keep people occupied. Now, more than half that wealth is gone, and the owners of what is left just might react in ways TPTB did not consider when TPTB try to take it from them.

I received this comment 1 post back from Donal Lang, a long time reader:

Hi Greg

Your experience of Mennonites is my experience of living in an isolated rural mountain village in the French Alps (but only 2 hours from Cannes!). Yes, the family/political ties are strong, but so are the school ties and church ties; its just about knowing each others' personalities really well. Yes, they make judgements about who is worth 'saving' and who's put themselves into trouble (drink, drugs, antisocial behaviour), but wouldn't most of us prefer it if our government-led socialist system would make some of those judgements too?

We seem to have a definition problem with 'Liberal Democracy' and liberal social policies. I'd disagree vehemently with the idea that the US invented these; they inherited all of their political and social systems from European immigrants. The French gave you the revolution and most of your Constitution (and the Statue of Liberty too!) The Swedish and Germans gave you much of your social structure, and the Italians gave you pizza, and the Mafia(or 'politics' as you call it!). As a country you came damned close to speaking French! Now, there's a thought worth pondering ;-)

In my view it was wealth which gave you the possibility of redistributive social programs to replace the ad-hoc systems, especially necessary in a fractured new society, and every wealthier country has made similar choices through the ages. Switzerland, Germany and Scandinavia had organised social polices in the Middle Ages.

Society fixes each problem by adding a layer of complexity. Each layer of complexity adds extra maintenance (labour and energy) and makes the structure more vulnerable to catastrophe. Localism is inevitable because we can no longer afford to maintain our complex society and it'll collapse. It's no longer a political discussion about 'isms', because 'local' will be the only game in town.

I for one will be pleased if 'Socialism' goes back to being society and 'Communism' goes back to being community.

Read that 3rd paragraph again: "In my view it was wealth which gave you the possibility of redistributive social programs..." 

And now, we have come to the end of that "wealth".  

ALL political movements come to an end long after their useful life ended, existing as vestigial accoutrements of the politics of the people that benefited (or thought they benefited) by their existence. Though we might argue over WHEN their usefulness expired, I don't think we need to argue that it DOES, in fact, expire.  If you accept this, then ALL of the political movements born in the post WWII era are either past, or coming to the end of, their useful lives in the Post Peak Oil era... Conservatism, Liberalism, Civil Rights, Feminism, Fundamentalism... will ALL yield to the new ism - whatever the nomenclature for that turns out to be (Localism, etc...).  If you doubt this just ask around for a "Muckraker" or "Know Nothing" political action committee.  

Mentatt (at) yahoo (dot) com

The End of Conservatism

If the Liberal Body politic is indefensible, so, too, is the Conservative movement.

The "Get Government out of the Way" yields itself to being completely full of s**t.  The Conservative establishment desperately needs the protection of Government to maintain its position.  Though not as bad as the Latin American version (which has absolutely no problem rolling out the tanks and pointing their guns at the people to maintain the "property rights" of their establishment) the American version is just as hypocritical.

The "Conservative Movement" came in response to the "Liberal Movement", not the other way around.  Liberals sought votes from the poor, and Conservatives sought money from the rich by promising each to protect one from the other.  It was a pretty simple model.  

The elected officials cared little for either constituency.  What these individuals really wanted was the power of office.  And they have perpetuated the war ever since in a battle for our political soul.  Each group's moronic constituents have sustained the carnage without noticing that each has lost the war.  The collapse of "wealth" around the world has left the spoils to neither, while stranding their adherents in perpetual group think that has left them unable to see that the ground has shifted beneath their feet.

The "Intelligentsia" of the Left will find themselves bereft without their trust funds.  They will now actually have to WORK for a living.  The "Moral Leaders" of the Right will actually have to walk the walk that they have been talking, and they, too, will actually have to work for their daily bread.

These 2 fleas arguing over who owns the dog they have been living on have yet to notice that the dog just died.

That dog is the Trillions of "wealth" lost over the past 6 months.  This process is not over.

Conservatism and Liberalism were the defining movements in American politics in the Post WWII era.  They are dead men walking along with their ugly offspring.  

The next epoch will be Libertarianism vs. Fascism.  The Conservatives and the Liberals together nearly guarantee the emergence of Fascism with their CENSURESHIP and INCESSANT BOOK BURNING.  Let us hope that Fascism's nemesis also emerges.

Menatt (at) yahoo (d0t) com

Saturday, March 7, 2009

Localism = the end of Liberalism, Feminism, Racism, and Bunch of other "ism's"

I read with fascination the Left's grasp of "Localism".  They have, in my opinion, likely forecast the most likely outcome of the unwinding of complex systems in an overpopulated and resource constrained world (every thing is relative, especially "resource constrained") in the Post Peak Oil era.

It is ironic that while the Right rejects Localism and the Left embraces it, Localism will mean the end of Liberalism, Feminism, Racism (racism is not just white bigotry against blacks, even though that is how it is currently defined in the U.S. political discussion), Socialism, etc... Not that the Right's inane positions will be recognizable in this new political environment, either.

Localism will mean, in less than 3 generations - say 50 years, but perhaps as little as 10, that the Family, and your extended kin, will be the primary source of power, strength, and resources for the individual.  Think back to your Shakespeare:  Juliet is of the House of Capulet.  What, exactly, does that mean?  What is the House of Capulet?  The political base of her extended family.  

Do you remember any socialist's in any of Willie's plays?  How about an organization like an anarcho syndicalist commune?  No?

OK, forget Shakespeare.  Can you name me ANY long lived societal organization based on the Socialist/Liberal model prior to the industrial revolution?  What about after?  I get a great deal of email and commentary about the European model.  That model existed only because of the inputs of the aftermath of WWII and cheap oil.  And that model is in full scale collapse as we speak.  Prior to WWII, Europe was the world's epicenter of political violence and resource destruction for centuries.  Europe's complex systems are as vulnerable as any.

As Americans re-localize, and WE WILL re-localize, our political realities will once again take on an agrarian flavor.  One of an ethic of hard work, frugality, personal responsibility, family, and community.  There will be no room in this new political environment for Liberalism, its ugly Step Child Feminism or its bedraggled, superannuated, and decrepit Mother - Socialism.  

What having children does to the political sensibilities of people in our time, will happen as a matter of course to the political sensibilities of EVERYONE living in a Localized environment.

Those derelict in providing for themselves in a Localist Environment will not be met with much sympathy by their neighbors.  Amish and Mennonite communities are there for the neighbors that fall onto hardship.  They are not there for drunks, drug addicts, thieves, slackers, etc... who are "shunned"  by the larger community.  These are the best examples of Localism that we have at this time.

Where does Liberalism and Feminism stand in a community that values FAMILY  (as in a woman's HUSBAND, or a man's WIFE) above all?  It does not stand - at all.  Family will once again be everything (there is no such thing as a divorce lawyer in Amish communities).   

I look forward to the Localist adventure with great anticipation. 

Mentatt (at) yahoo (d0t) com

If you are young and you aren't Liberal you haven't got a heart

There is an old saying, sometimes attributed to Winston Churchill,  that goes something like this:

"If, when you are young, you are not a Liberal - you haven't got a heart.  And by the time you reach 40, if you are not a conservative - you haven't got a brain."

I would like to edit that.  Mine would read:

If you when you are young and CHILDLESS, you are not a Liberal - you haven't got a heart.  If after having CHILDREN you have not come to your senses - you haven't got a brain."

"Atlas Shrugged" is the LIBERTARIAN'S bible. There is but a small sliver of us left in the Republican party, I'll call it the New Hampshire wing, and we despise the Wacko Wing as much as the Dem elite do.

I got a bunch of emails from folks recently and from reading your comments I get the sense that most of you do not have children (if I am wrong, please don't beat me over the head and shoulders).

I do NOT feel it is "only fair" to pay more and more in taxes.  It is EASY to be a "peace, love and charity flower child" when the only mouth you have to feed is your own, and/or if you come from a well educated family of privilege (actually, ESPECIALLY more so). It is quite another when you are the sole provider for a family of 4,5, 6, etc... ESPECIALLY if, on top of that, you are the scion of the Spam and Velveta experience... 

Just TRY and provide a home, a couple of cars, HEALTH INSURANCE, life insurance, savings, private school tuition, music lessons, karate lessons, trips to Yellowstone and Disney etc... for a family of 5 in the U.S. on $250k per year.  Yes, I KNOW FIRST HAND that many families do not have these privileges.  It seems some are suggesting that guys like me that broke out of the Spam and Velveta bracket should be somehow HONORED to hand over the resources with which I provide for my family to President Hope, Madam Botox, and Senate Majority Leader Viagra.  Step into my shoes for a moment, then come to me and tell me about having a real life and how you feel about government confiscating half your paycheck.  

(If you haven't a family to worry about and provide for, it is going to be hard for you to relate.  When I was young, I was decidedly "pro-choice".  After seeing my children on an ultrasound at 12 weeks into my wife's pregnancy I came to a very different conclusion - one that included that I had been manipulated by a political Special Interest Group that felt that a mother's convenience was more important than a human life - and I felt like an idiot. I am not trying to raise the abortion debate, you have to live with yourself on that one, only that people's views evolve.)

My response:  I am "GOING GALT".

Mentatt (at) yahoo (d0t) com

Friday, March 6, 2009

Going Galt

Who is John Galt?

(John Galt is the main character created by Ayn Rand (perhaps the greatest woman of all time) and her famous novel "Atlas Shrugged".)
In Rand's novel, creative people (the "Atlases" of the title) are hounded and punished for their labor by an oppressive, socialistic state. In response, they retreat from society to a hidden enclave where they watch civilization's slow collapse.
"People are starting to feel like we're living through the scenario that happened in 'Atlas Shrugged,'" said Campbell. "The achievers, the people who create all the things that benefit rest of us, are going on strike. I'm seeing, at a small level, a kind of protest from the people who create jobs, the people who create wealth, who are pulling back from their ambitions because they see how they'll be punished for them."
People have an intense sense of fairness.  President Hope, Madam Speaker Botox, and Senate Majority Leader Viagra cannot force the top producers (though they might try; there are always those willing to point a gun, and worse, at others to do the bidding of the powerful) in our society to pay for the healthcare and retirement comforts of everyone else.  Any attempt to do so will only result in these folks "Going Galt".  

Yea, guys making $14 million per year for throwing a little ball 90 feet will probably not be disincentivized.  Guys killing themselves to make an extra $100k per year to provide for their family?  They ain't going to work on saturdays from now on.  Mothers of young children going back to work for $50k? Well, Childcare ain't deductable, so she ain't going back to work. Folks in cash businesses?  A little bit more of that cash is going south with the taxes on that income left unpaid. Small business owners already making $250k?  They ain't going to expand and make that next hire.

Remember all that wealth that Obama wanted to distribute when he began his campaign over 2 years ago?  IT DOES NOT EXIST ANYMORE.  What little IS left will not survive the Left's attempt at re-distribution.

I can tell you first hand.  I am Going Galt.  I am going back to my farm in Tennessee next week. I am going to work in my word shop, trade some livestock, and work my garden.  But I am NOT going to work hard at paying taxes.  I have no debt and the kids educations have been provided for.  I'll work only enough to keep from going backwards.

My suggestion is that the government encourage people on the receiving end of the declining pool of tax dollars to log on to Sharon Astyk's wonderful web site and learn some level of self-sufficiency - because the government just ain't going to be keeping their silly promises.

Hope, Botox, and Vaigra can KMA.


Oil appears to me to once again be at an inflection point.  

All Commodities have a price cycle.  When supply overwhelms demand, prices fall and investment in productive capacity is cut until demand overwhelms supply and prices rise.  My bet is that we are at the beginning of the point where cuts in investment of productive capacity cause insufficient supply.  Only this time, the world will have run into Peak Oil, and the U.S. will have run into the Oil Import Crisis.

The stock market is going to bifurcate (IMHO) into companies that actually pay dividends and those that do not.  Companies will quickly see that if they want to access the public markets they had better reward shareholder's capital before executive bonuses, or they will not be publicly traded (or operating for that matter) at all.  The valuations on certain franchises in the energy, utility, and food sector for example, have gotten priced for anarchy and stupidity.  I do not give specific advice here... but you can actually buy shares in energy companies trading at single digit multiples, with little or no debt (less than .3 debt/equity) an 8% dividend and reserves of the most valuable commodity known to man in the ground.  

What we have at THIS moment in the U.S. equity market is a "buyers strike" on ALL equities.  That strike will come to an end for the big dividend payers with sufficient cash flow to support the dividend and little debt.  That pretty much describes half the companies in the energy complex.

The other companies in the S & P 500?  The ones that do not pay dividends to their shareholders?  They are going to ZERO.

And I am "Going Galt".

Mentatt (at) yahoo (d0t) com

Thursday, March 5, 2009

The New Establishment

Maria Bartiromo talks to global investor Jim Rogers

By Maria Bartiromo

In 1970 a young Wall Streeter named Jim Rogers hooked up with George Soros to start the legendary Quantum Fund. The ensuing decades have seen Rogers build an iconoclastic career as an author, adventurer, and creator of the Rogers International Commodities Index. And throughout, Rogers—now based in Singapore—has remained an outspoken global investor. Today is no different. He has harsh words for former Fed Chairman Alan Greenspan, suggests President Barack Obama and his economic team are not up to the task, and thinks tough love is the answer for America.

MARIA BARTIROMO: What do you think of the government's response to the economic crisis?

JIM ROGERS: Terrible. They're making it worse. It's pretty embarrassing for President Obama, who doesn't seem to have a clue what's going on—which would make sense from his background. And he has hired people who are part of the problem. [Treasury Secretary Tim] Geithner was head of the New York Fed, which was supposedly in charge of Wall Street and the banks more than anybody else. And as you remember, [Obama's chief economic adviser, Larry] Summers helped bail out Long-Term Capital Management years ago. These are people who think the only solution is to save their friends on Wall Street rather than to save 300 million Americans.

So what should they be doing?

What would I like to see happen? I'd like to see them let these people go bankrupt, let the bankrupt go bankrupt, stop bailing them out. There are plenty of banks in America that saw this coming, that kept their powder dry and have been waiting for the opportunity to go in and take over the assets of the incompetent. Likewise, many, many homeowners didn't go out and buy five homes with no income. Many homeowners have been waiting for this, and now all of a sudden the government is saying: "Well, too bad for you. We don't care if you did it right or not, we're going to bail out the 100,000 or 200,000 who did it wrong." I mean, this is outrageous economics, and it's terrible morality.

You have said Bear Stearns and Lehman (LEHMQ) would still be around if Greenspan hadn't bailed out Long-Term Capital Management in 1998. Can you explain?

Well, if Long-Term Capital Management had been allowed to fail, Lehman and the rest of them would've lost a huge amount of money, their capital would've been impaired, and it would've put a terrible crimp on Wall Street. It would've slowed them down for years. Instead of losing capital, losing assets, and losing incompetent people, they hired more incompetent people.
Should AIG (AIG) have been allowed to fail, too?

First of all, banks and investment banks and insurance companies have been failing for hundreds of years. Yes, we would've had a terrible two years. But you're dragging out the pain. We had 10 years of the worst credit excesses in world history. You don't wipe out something like that in six months or a year by saying: "Oh, now let's wake up and start over again."
What about Citigroup (C)? What about the car companies?

They should be allowed to go bankrupt. Why should American taxpayers put up billions to save a few car companies? They made the mistakes! We didn't make the mistakes! I'm sure they'll give them the money, but I'm telling you, it's a mistake. It's a horrible mistake.

I totally understand what you're saying, but the banks are under massive pressure.

They all took huge, huge profits. Who was the head of Citigroup? Chuck Prince? I mean, how many hundreds of millions of dollars did Prince take out of the company? How many hundreds of millions of dollars did other Citibank execs take out of the company? Wall Street has paid something like $40 billion or $50 billion in bonuses in the past decade. Who was that guy who was the head of Merrill Lynch (MERR)?

Stan O'Neal?

Right, Stan O'Neal. He got $150 million for leaving, even though he ruined the company. Look at the guy at Fannie Mae (FNM), Franklin Raines. He did worse accounting than Enron. Fannie Mae and Freddie Mac (FRE) alone did nothing but pure fraudulent accounting year after year, and yet that guy's walking around with millions of dollars. What the hell kind of system is this?
Are you worried the economic crisis will lead to political turmoil in China and elsewhere?

I absolutely am. We're going to have social unrest in much of the world. America won't be immune.

What does all this mean from an investment standpoint?

Always in the past, when people have printed huge amounts of money or spent money they didn't have, it has led to higher inflation and higher prices. In my view, that's certainly going to happen again this time. Oil prices are down at the moment, but that's temporary. And you're going to see higher prices, especially of commodities, because the fundamentals of commodities are enhanced by what's happening.

Which commodities are worth buying or holding on to?

I recently bought more of all of them. But I really think agriculture is going to be the best place to be. Agriculture's been a horrible business for 30 years. For decades the money shufflers, the paper shufflers, have been the captains of the universe. That is now changing. The people who produce real things [will be on top]. You're going to see stockbrokers driving taxis. The smart ones will learn to drive tractors, because they'll be working for the farmers. It's going to be the 29-year-old farmers who have the Lamborghinis. So you should find yourself a nice farmer and hook up with him or her, because that's where the money's going to be in the next couple of decades.

Maria Bartiromo is the anchor of CNBC's Closing Bell.


The Obama economic team is either going to have to do an about face, or my theory that the Dow will hold 6,000 is going to get blown out of the water. Oh, well.

The markets are like an election that is held everyday. No matter how the Left might spin it, Obama keeps losing in this election. If you find yourself still saying silly stuff like "give him a chance", you are clearly tone deaf (not to mention you are a "true believer" and perhaps a brain dead groupie) to the world's market participants. They gave him a chance, and he flunked it.

Good Luck!

Mentatt (at) yahoo (d0t) com



That is all we, the American people, seem to get from our government, our media, our political parties. And you wanna know why? Because it WORKS. These groups aren't stupid. They would not continue to do something that does not work.

NO ONE in the markets would argue FOR the Obama economic plan. Someone sent me data showing that Obama WON the over $200k income vote. Yes, it appears that he did.

My bet is that this group will be less than happy with their decision. Futher, there is quite a difference between MAKING money and actually HAVING money (or a portfolio). This can be subdivided once more between those that HAVE money they inherited from those that worked a lifetime in order to HAVE the money they do.

Our entire system depends on this last group. These are the folks that start businesses and professional practices, and set an example for everybody else. The next group that society depends on are workers that live by the rules and within their means.

It is pretty simple, really. The Obama administration's economic plans attempt to redistribute wealth and income is being welcomed by the free market like something between enthusiasm for a root canal and a hemoroid. The Left (like MSNBC) is spinning it back on Bush, the Right has nothing intelligient to say for itself, and we don't have a MIDDLE.

To think that our Republic has been reduced to this.


Mentatt (at) yahoo (d0t) com

Wednesday, March 4, 2009

G.E. Revisited

G.E., once the largest company in the world by market capitalization, and once the crown jewel of the American Corporate Aristocracy, is trading like a penny stock - at prices not seen since the S & L crisis of 1991.

I had this to say about G.E. in my April 11, 2008 post:

"The jury is still out on the veracity of that particularly popular advertising slogan of GE's of the 1980's and early 1990's... Maybe they did... and maybe their products will produce so much atmospheric CO2 that G.E.'s Connecticut offices will be under 6 feet of water from the encroachment of Long Island Sound. I wouldn't presume to say, but some awfully smart folks (the kind we trust billions of dollars and dozens of lives in the U.S. Space Program to) sure seem to think so. Being a betting man, I ain't betting against these guys in favor of a bunch of innumerate politicians, whose background is in the Law. Nothing against the Law, mind you, it is just that that particular skill set leaves one ill equipped to determine a course of action in response to input from folks whose training is in physics and mathematics. Nor would I retain a physicist to represent me in so much as a traffic ticket.

But I digress...

GE, with nearly $170 BILLION in revenues, representing over 1% of U.S. GDP, appears to be in the midst of its own recession. Can the U.S. not be tracking G.E.? I doubt it.

GDP will track the direction of Oil imports, and Oil imports are down.

Time to get your boots on, because the B-llsh-t is gonna get real deep. The financial media has done the average investor a significant disservice. Nearly 2 years ago, the price of oil declined precipitously to the mid $50's. The media was RIFE with stories of ethanol supplies and hydrogen vehicles and declining oil demand... and "Average Joe" investor fell into their spell:
"The Oil bubble has popped! Is it time to buy the banks?" Proclaimed the talking heads on CNBC.

Fast forward to today: You don't find many stories supporting those silly ethanol claims, instead it has become obvious, even to the financial media, that using food for fuel has had some unintended consequences - namely skyrocketing food prices.

If I had given that kind of advice at that time - I might be spending the next several years in litigation. The media has no such liability. Like the old adage "no responsibility without authority", the financial media does not operate under any condition other than to entertain you, and to present themselves in a way that does nor offend or damage their REAL customer - the advertisers.

The broker's were already spinning the GE debacle. "Technically, blah, blah, blah..." B.S!!
GE is so large and unwieldy to understand that I respectfully submit that no "analyst" covering them has a better handle on their earnings and revenues outcome(s)by using a micro, bottoms up approach on the company itself than does a general macro analyst doing top down work on the entire U.S. economy, (Yes, I am aware that G.E. is THE multinational, but work with me, I am getting there) and projecting those findings onto GE.

Did I mention that, statistically speaking, it would be IMPOSSIBLE for GE's earnings to have been as smooth and reliable as they have been without significantly "managing" those earnings?
GE's revenues increased nearly 8%, so why the decline in earnings? Maybe, just maybe, the inflation and money supply pressures within the economy as reported by the U.S. B.L.S. are not quite as accurate as they could be. Maybe inflation is more than the 6.3% wholesale number being reported for 2007. Maybe real inflation was more than the 8% revenue growth reported by GE. And maybe the real inflation rate of G.E.'s costs of goods sold rose even faster. After all, there is no reason to doubt that the earnings "management" GE is famous for did not continue to occur this past quarter.

The S & P 500 is down about 9.3% over the past 12 months. Inflation was over 6% by any reasonable measure, and some credible sources estimate inflation estimate inflation far higher.
So in "real dollar" terms equities are off some 15.6% over the past year, and the worst of the foreclosure crisis, banking write downs, and the great credit default swaps "unwinding" has not arrived yet.

If you want to be a better investor/trader I have a tip for you:

Whenever you are watching the talking heads and their guests on the various financial media outlets, visualize these folks wearing striped prison garb with a stenciled number on their chest with a ball and chain around their ankles and a "Pinocchio" nose that grows as they speak.

It always worked for me."

And that's the way it was on April 11, 2008

Yours for a better world,

Mentatt (at) yahoo (d0t) com