Get Your Boots On (Cause the Bull S**t is getting deep)

The U.S. equity market has responded well to policy and jaw boning.  Nothing in the fundamental picture changed during the past 6 weeks.

Larry Summers was out yesterday trying to cool off expectations - and he should, or at least somebody from the administration should.  

Yet he is still making prognostications based upon past experience:

Summers said the economy will pick up as manufacturers rebuild depleted inventories and consumers replace aging cars. “These imbalances can’t continue forever,” he said. “When they are repaired they will be a source of impetus for the economy.”

Larry Summers knows that we have overcapacity everywhere in the system.  If consumers need to replace aging cars, we have nearly 1 year's worth of inventory at today's rate of sales unsold and stored in ports the world over.  Even if this were not the case, will consumers replace aging cars at a pace sufficient to cause a recovery as defined by the administration?  Maybe, but I have my doubts.  This will be entirely dependent upon the volume of imported oil, and my bet is that over the next 5 years, imports will continue to decline - perhaps precipitously.

Summers is also on the record saying that a Chrysler Bankruptcy would not necessarily lead to liquidation.  HAHAHAHAHAHAHA!  Isn't that a SCREAM??!!

If it wasn't for the Federal Government, Chrysler, along with G.M. would have been liquidated earlier this year.  The Feds can keep anything going that they want to keep going.

The simple fact of the matter is that if we want G.M. and Ford to survive, Chrysler must die.

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It appears that G.M. and Chrysler employees are more important, or at least more benefited, by our Federal Government than you and I.

Labor leaders and U.S. officials seeking a way to pay for Chrysler LLC's and General Motors Corp.'s benefit programs for retirees might find an important source of aid in an obscure federal subsidy covering certain retiree health-care costs.

Under the provision, known as the health-coverage tax credit, the federal government can pay health-insurance premium costs for early retirees -- those between 55 and 65 years old -- if their former employer runs into financial problems and can't pay promised benefits. In recent years, some early retirees from the troubled U.S. steel industry have used the tax credit, which was created by Congress in 2002. Now some retirees from auto-parts makers also want to take advantage of it.

If a small business owner like myself falls upon hard times the government will NOT be there to pick up my healthcare costs - despite the FACT that small business owner's paid FAR more in taxes than UAW employees.  Small business people have not organized like the UAW - yet. If the government keeps up this type of political favoritism it risks REAL upheaval.

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Last year I read John M. Barry's "The Great Influenza", a powerful narrative of the circumstances and outcomes of the 1918 flu that killed 50 million people.  I recommend the book highly.

I have no opinion on the Mexican swine flu other than to say that if it is something bad, or worse, it could not come at a more inconvenient time for politics,  the economy, or the markets.

Mentat (at) yahoo (d0t) com

A Little Humor

I received this from Steve in Sarasota:


Humor worth passing along...

Here is the Washington Post's Mensa Invitational which once again asked readers to take any word from the dictionary, alter it by adding, subtracting, or changing one letter, and supply a new definition.

Here are the winners:

1. Cashtration (n.): The act of buying a house, which renders the subject financially impotent for an indefinite period of time.

2. Ignoranus : A person who's both stupid and an asshole.

3. Intaxicaton : Euphoria at getting a tax refund, which lasts until you realize it was your money to start with.

4. Reintarnation : Coming back to life as a hillbilly.

5. Bozone ( n..): The substance surrounding stupid people that stops bright ideas from penetrating. The bozone layer, unfortunately, shows little sign of breaking down in the near future.

6. Foreploy : Any misrepresentation about yourself for the purpose of getting laid.

7. Giraffiti : Vandalism spray-painted very, very high

8. Sarchasm : The gulf between the author of sarcastic wit and the person who doesn't get it.

9. Inoculatte : To take coffee intravenously when you are running late.

10. Osteopornosis : A degenerate disease. (This one got extra credit.)

11. Karmageddon : It's like, when everybody is sending off all these really bad vibes, right? And then, like, the Earth explodes and it's like, a serious bummer.

12. Decafalon (n.): The grueling event of getting through the day consuming only things that are good for you.

13. Glibido : All talk and no action.

14. Dopeler Effect: The tendency of stupid ideas to seem smarter when they come at you rapidly.

15. Arachnoleptic Fit (n.): The frantic dance performed just after you've accidentally walked through a spider web.

16. Beelzebug (n.) : Satan in the form of a mosquito, that gets into your bedroom at three in the morning and cannot be cast out.

17. Caterpallor ( n.): The color you turn after finding half a worm in the fruit you're eating.

The Washington Post has also published the winning submissions to its yearly contest, in which readers are asked to supply alternate meanings for common words.

And the winners are:

1. Coffee , n. The person upon whom one coughs.

2. Flabbergasted , adj. Appalled by discovering how much weight one has gained.

3. Abdicate , v. To give up all hope of ever having a flat stomach.

4. Esplanade , v. To attempt an explanation while drunk.

5. Willy-nilly , adj. Impotent.

6. Negligent , adj. Absentmindedly answering the door when wearing only a nightgown.

7. Lymph , v. To walk with a lisp..

8. Gargoyle , n. Olive-flavored mouthwash.

9. Flatulence , n. Emergency vehicle that picks up someone who has been run over by a steamroller.

10. Balderdash , n. A rapidly receding hairline..

11. Testicle , n. A humorous question on an exam.

12. Rectitude , n. The formal, dignified bearing adopted by proctologists.

13. Pokemon , n.. A Rastafarian proctologist.

14. Oyster , n. A person who sprinkles his conversation with Yiddishisms.

15. Frisbeetarianism , n. The belief that, after death, the soul flies up onto the roof and gets stuck there.

16. Circumvent , n. An opening in the front of boxer shorts worn by Jewish men

Mutually Exclusive Events

In mathematics there is a term: 

"Mutually exclusive events".  Two things that cannot happen at the same time, within the same event horizon, or that force an environment that whereby the remaining event cannot occur.

For instance, remember part II of the Law of Matter?  "Two objects cannot occupy the same space at the same time".

Before your eyes glaze over with the remedial math lesson...

The government reports that total vehicle miles traveled increased by 2.7% in February, 2009.  

Now, back to mutually exclusive events...

Total vehicle miles traveled cannot increase at the same time that total petroleum availability declined AND inventories rose, unless some crazy things happened to the 50% of our oil supply that is not used to make gasoline.

This is the problem with any analysis using disparate data sources.  I am ready to pull my f**king hair out...  

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This Should get your Attention

The following is from the quarterly earnings release transcript of Potash of Saskatchewan, Inc. (POT - NYSE), the world's largest fertilizer company (entire article here).

A year ago, concerns over world food shortages were headline news and little has changed to alleviate the pressure on food supply. The world's population continues to grow. Economies in countries like China and India, although not as robust, keep expanding giving their people more money to spend on food. At the same time, global grain inventories remain historically tight.

This was brought to the forefront again earlier this week as G8 officials called for increasing public and private investment in agriculture citing growing concerns over the global food supply. A dangerous game is now unfolding around the world. Fertilizer applications are being reduced at unprecedented levels, with our estimates for North American potash applications falling as much as 30% to 35%, phosphate by 20% to 25% and nitrogen by 5% to 10%.

To put this in context, U.S. applications this fertilizer year are expected to be similar in total volume to the 1983 pick year while farmers now need to generate 90% more production than in 1983 and will plant 25 million additional acres of corn, the most fertilizer intensive crop in the U.S. Clearly, nutrient replenishment will suffer.

This level of reduction has never been seen before. No one can state precisely what the impact will be on the world's food supply immediately or over the longer term, but we know with scientific certainty that nutrient under application damages both crop yields and quality.

Farmers in the southern hemisphere reduced their potash applications for the current crop just now being harvested and the timing could not have been worse. Potash is a quality nutrient. It improves the taste and nutritional value of food. It enhances water retention, raises yields and helps plants fight disease and drought.

With less than ideal growing conditions this season, those farmers in Argentina and Brazil are now experiencing a substantial decline in yields. We would not be surprised to see farmers in other major producing regions having similar declines this year. After two record world crops in 2007 and 2008, the year 2009 could be a completely different story.

The most valuable part of a farm is the quality of its soil and large amounts of nutrients are mined from the soil with every harvest. Every time farmers grow a crop without replacing the nutrients, it's like borrowing money with no repayment plan, and there is no magical bail out for lost fertility in the soil bank.

We believe farmers' decisions to cut back applications are not being made out of fiscal necessity as tight grain fundamentals continue to support crop commodity prices; farmer returns are well above historical averages. The reduction in fertilizer applications is more about psychology than economics and the sudden slow down in volumes is forcing producers to make some tough decisions about production and price.

From seekingalpha.com

If you think "economic issues" are a problem... money pales in comparison to food.  The government can "issue" more money.  They cannot issue food.

It is far more likely that food shortages would affect the American people indirectly, in the form of civil unrest in third world trading partners, than directly in the form of domestic food shortages - though nothing is impossible.

Americans have no idea of just how dependent we are on fertilizers.  Our dependency on Oil is not even close.  

Yours for a better world,

Mentatt (at) yahoo (d0t) com

New Blog

I have a blog on my farm:

http://jeffersfarm.blogspot.com/

for those of you interested in self sufficiency and homesteading.

G

Freedom

To be "Free" in America means debt"free".

That is the beauty of being "rich". "Rich", of course, is a moving target. It helps to define a "target" if you hope to hit the thing. I live in one of the wealthiest enclaves in the U.S. Palm Beach County. (The reason Bernie Madoff came here to pull off his scam is because "that's where the money is".) With all of their wealth, people here, for the most part, are not "rich".

It is all how you define it. Forget "happiness". That abstract cannot be defined. I define "rich" as having enough resources available so that your lifestyle would not be impacted for say... 10 years, if you stopped earning. No, that is not hop in your G4 and do lunch in Rome rich, but the peace of mind that comes with not sweating 10 years worth of bills is incalculable. There are 2 variables: Income and OVERHEAD.

Here is where I am going with this.

I keep hearing members of the Obama administration in the media extolling the "need" to get more "credit" (every "credit" is some contra party's debt) out into the "economy". I want to ask them:

Who's "need"?

Certainly not the American people's "need". They need more debt like a hole in their head.

No, the government "needs" you to go into and stay in debt. The crisis that the government really fears is that folks will actually figure out how to live happily and comfortably with smaller homes, less stuff in those homes, smaller cars, shorter commutes, less fuel consumption, no credit card debt, G-d forbid people actually got GOOD at gardening, planted fruit trees instead of ornimentals, and had backyard chickens - not to mention living together in extended families, thus undercutting "household creation".

This is what the administration truly fears. Because then the economy would "collapse" on "their watch". Never mind that these things will all come to pass in any and EVERY event. The administration has decided to "stay the course" of the past 4 or 5 administrations (nary a difference between them), and they want YOU (I can just see the Uncle Sam poster of Obama in Red, White, and Blue top hat and pointing like Apollo Creed "I want YOU!) to get into debt and stay in debt.

(Ever see the movie "accepted"? Ridiculous, childish, and campy but there is a show stealing scene by Lewis Black tells the parents of a student at his college:

Look, we throw a lot of fancy words in front of these kids in order to attract them to going to school in the belief that they’re gonna have a better life, and we know that all we’re doing is breeding a whole new generation of buyers and sellers, BUYERS AND SELLERS! Pimps and whores, PIMPS AND WHORES! and indoctrinating them into a life long hell of debt and indecision!

If you can find it on the web watch it, otherwise it is almost worth sitting through the movie just to see that one scene.)

Don't fall for it. "Freedom" is being debt free.

Mentatt (at) yahoo (d0t) com

Markets

I missed the rally in the equity market for the most part.  It began when I was on vacation and ran for 5 weeks.

I am not very constructive on U.S. equities at the moment (some tech companies are tempting and I even bought some precious metals miners... though I did hedge them with covered calls).  I am waiting for a retest of the February/March lows.

I don't like banks as I think they are doomed.  I don't like retailers as I think they are doomed.  I don't like insurance companies as I think they are doomed... get the idea?  

I don't even like energy equities at these prices.

I don't like any of the non precious metals commodities until Oil firms up, and I don't see Oil firming this year... at least not above $60 to $65.

I am long Gold and Silver (I usually have these positions hedged with covered calls) and rather than equities, I am long short term treasuries and am shopping around for short to mid term corporate paper (notes and bonds).

Oil inventories continue to build, and that just ain't a great sign for the economy.  Natural Gas is in worse shape.  At some point the price will drop so far below the cost of production that an opportunity will develop... but for my money we are not there just yet.

This was from today's EIA inventory report (complete report here):

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.9 million barrels from the previous week. At 370.6 million barrels, U.S. crude oil inventories are above the upper boundary of the average range for this time of year. Total motor gasoline inventories increased by 0.8 million barrels last week, and are above the upper boundary of the average range. Finished gasoline inventories fell last week while gasoline blending components inventories increased during this same time. Distillate fuel inventories increased by
2.7 million barrels, and are above the upper boundary of the average range for this time of year. Propane/propylene inventories increased by 0.6 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 11.3 million barrels last week, and are above the upper limit of the average range for this time of year.

The last line gives me the heebie jeebies.  Imports and domestic production are down BIG - yet inventories continue to pile up BIG.  I have no idea how somebody can see "Green Shoots" given the lack of energy consumption... but what do I know.  Yes, I know you are supposed to buy when things are bleakest - but right now it feels like I am the only guy on Wall Street that sees things so bleakly.

In any event, I will be taking a position in Oil for delivery several years out at some point - just not yet.

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I see things pretty much the way the writer of this article sees things... and if he and I are correct, the big banks, and many, many smaller banks, will need to be nationalized in some way.  This won't be good for the equity markets under any circumstances.  Less obviously, this will prove a DISASTER for the municipal bond market.

Many cities, are at this very moment, coming to the conclusion that the only way out for them is a Chapter 9 Bankruptcy Filing.  Municipalities in California, Florida, New York, Nevada, and Arizona will be the worst offenders - but there will be plenty of others.  The states cannot avail themselves of Chapter 9, only local governments have that option.  That does not mean you are that much more safe in state issued paper...  I will have to do some more research on that subject... and so should you, if you or somebody near and dear to you is relying on tax free muni bonds.

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"Freddie Mac Finance Chief Commits Suicide"

There might be a worse sign than having the CFO of your company commit suicide - I just can't think of any.  Something is really, really rotten in Denmark, me thinks.

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The entire world's financial system may very well end up where Iceland is RIGHT NOW.  The probability of that outcome is a number far greater than Zero, even more probable than the low probability/high consequence outcomes people insure themselves against.  

Yours for a better world,

Mentatt (at) yahoo (dot) com