Reading the Tea Leaves

While I expect the stock market to bottom sometime before ZERO, I do not think Americans are getting it yet - there will be no real recovery. EVER. (Well not in my lifetime and I am in my late - 40's.)

The American economy, such as it is, is a Finance, Insurance, Real Estate, Law, and Entertainment heavy shadow of what it once was. The states of New York (Finance) and California (Entertainment) are the best indicators of what will be across the nation. Municipal bankruptcies, 25 % of Americans on food assistance, up from 10% or 11% now (and then only if the system does not collapse), political crisis, and even the possibility of food shortages await Americans over the next decade. The TAXPAYERS (people who pay taxes on a NET basis) will simply be unable to meet the burden. And unlike the 1930's, we have constructed a HUGE underclass of folks with no ability to provide for themselves, and no family farm to return to for meaningful work - hell, no family (fatherless households) at all.

But we do have a great many guns; a great many groups that see themselves as "victims" of bigotry or economic exclusion; a number of religious groups that encourage their members to believe that there is something more special about their group than others; and an establishment with substantial capacity to show just who REALLY is the boss when challenged (but not in the end).

This "establishment" is likely to be pretty grumpy. They had an astoundingly fortuitous position: Some phenomenon within our system directed the vast majority of society's resources into the pockets of the top 1%. Think about that. The "Establishment" had EVERY incentive to increase the aggregate debt load of our society to the absolute max, because every debt is an equal and opposite asset to the contra party. As we expanded the American debt load from 110% of GDP in 1974 to 350% in 2007, there was a corresponding increase on the OTHER SIDE OF SOCIETY'S BALANCE SHEET. Your debts are somebody else's assets, right?  The term "wage slave" was far more accurate than the masses realized, but the establishment kept the masses distracted with the pro life/pro choice, equal pay, racisim, blah, blah, blah.   Anything to keep the lumpen masses at each other's throats and not keeping their eye on THE ball.

Out rolls the propaganda machine (media advertising), convincing you to work hard at jobs you HATE in order to buy shit you don't need (McMansions, cars with 2 million horse power, blood diamonds, golf club memberships), and what's worse... you were convinced to go into DEBT to do it - debt that spread out amongst the masses with the interest cash flowing back to an establishment with every incentive to keep the cycle going and expanding until, as in all exponential growth in finite medium, it crashes. (Of course, on an individual basis, most of us come to our senses deep into middle age... unfortunately, a bit too late to fix the con that has been perpetrated upon us.)

And that is where we find ourselves at this very moment. (And BTW, I firmly believe in free market capitalism.  I just do not believe in fractional reserve banking or the Federal Reserve system.)

The funny thing is that the Democrats - "The Party of the Working Man and Woman" - the party in power, is desperately trying to re inflate this system. Ironic, no?

For better or worse, they will be unsuccessful in this endeavor. Americans, representing 25% of the world's GDP, need to SAVE. That means LESS net debt (dealing a death blow to attempts to re inflate), and less consumption (after all, the definition of savings is under consumption). Ergo, cars will continue to pile up in sales lots and ports around the world, empty houses will continue to rot in the rain, local and state budgets will continue to come under unbelievable pressure from a decline in sales taxes and an increase in demands from their citizens who long ago have lost any sense of self sufficiency, work ethic, and thrift.

The markets (take Gold: In 2000 it took 40 ounces of Gold to buy 1 share of the Dow Jones Industrial Average. Today it takes just over 8. In other words, stocks have lost 80% of their value against the only currency that matters) and the state budget offices are telegraphing pretty clearly what they see in our future. I have tried to communicate the stark implications of our acute dependence on the rest of the world to finance our way of life - and while I thought the crash would come through energy shortages, the financial collapse beat Oil to the punch. Rather than the world ending by fire, it now appears ice will be the culprit, with fire to follow any spring thaw.

I firmly believe events will unfold more quickly now, though I have no crystal ball to tell me what, exactly, will happen and when. I bet you will know it when you see it.  The U.S. pension system cannot withstand 10% unemployment (as it is measured today) and its corresponding effects on the U.S. equity and corporate debt market.  There is no guarantee that the unemployment rate is not somewhat higher.

At the time, then U.S. Treasury Secretary Henry Paulson's plea to Congress less than 4 months ago to save the banking system or risk martial law seemed rather shrill. (Don't believe that conversation took place? Just click the link and listen to members of Congress.) Now I don't think so at all, and I am convinced the banking system will be nationalized to save us, or maybe just postpone, from that unhappy outcome. Paulson and his team were wrong on the timing, not the eventual outcome, I think.

The economy is contracting wildly. This will result in substantial under investment in productive capacity of nearly all commodities - but especially energy, food, and fresh water - and the effects of shortages of these critical commodities and political repercussions of years of decline are going to hit us so hard, snot is going to come out of our collective noses.

Mentatt (at) yahoo (d0t) com

P.S. One of our regular readers (Coal Guy) made the observation that the time to prepare was last year. Although I think he is correct, it could not hurt to get going.

P.P.S. "Bureaucrat" will decry my conclusions and assertions here. There are 2 sides to every trade, a winner and a loser. I write this stuff for my own purposes, and you have to take responsibility for your own actions.

Where Is The Outrage?

Dear American Political Left:

Have you READ the frigging "stimulus bill" coming out of the U.S. House of Representatives?

DREK! DREK! DREK!!

WTF!!

5% for "Infrastructure", and all of that to maintain support of individual automobile ownership??!!  How fu&^%!! hypocritical can you possibly be??!!

Keep Hope Alive?  I'd rather have GWB (almost), at least he'd veto this DREK.  Obama got it right when he called Wall Street's thievery "shameful", now he needs to reign in the California Cowgirl running the $%^#!~! House.  Anybody notice how California is doing in all of this anyway?

Where is the OUTRAGE from the Left??  (I must be out of my mind asking that...)We are back at the edge of the ABYSS, and this is the best the Democrats can do for the country?

Mentatt (at) yahoo (d0t) com

Beware, the Ides of March...

And the Ides of February, too.

Last year the action was fast and furious, spiking Oil prices, crashing equity markets, Fannie & Freddie nationalized, Banks seized by the FDIC.

It was a glorious time to be a Blogger!!

Ahh, but all good things come to an end...

Things only SEEM boring at the moment especially when compared to this past summer and fall. Don't let the quiet fool you.

The U.S. banking system is INSOLVENT.  The biggest wave of foreclosures has yet to be realized, and the coming credit card massacre is going to be bloodier than the worst B Movie horror flick.  

Yet the market for financial stocks rallied yesterday.

Folks, do not get sucked into the financial stocks short covering rally.  

Good Luck!

Mentatt (at) yahoo (d0t) com

Obama's Best Pick You Never Heard Of

Obama has made an incredibly astute and fortutitous pick of Peter Orszag as the White House Budget Director.  Orszag is brilliant, plain spoken, and comes to the job absent a bunch of political baggage that might have caused folks to dismiss his fantastic analytical skills.  (Please don't think I am gushing about President Obama - I am a stone cold pragmatist and I believe I harbor no illusions about the actual powers of the Presidency.)

Read this article in today's Marketwatch.com (excerpts follow link):

Peak oil? Global warming? No, it's 'Boomsday!'

Six years ago, Peter Orszag, President Obama's new budget director, co-authored a Brookings Institution study that concluded: "Balancing the budget would require a 41% cut in spending on Social Security and Medicare, a 47% cut in discretionary spending, or a 17% cut in all non-interest spending." It's getting worse: Today entitlements eat up 40% of the federal budget and are growing.

Bruising battle? It won't matter. In the long term, reforming entitlements will be like rearranging deck chairs on the Titanic. Remember, Obama's adding a $1 trillion stimulus package on top of what Nobel economist Joseph Stiglitz calls a "$10 trillion hangover" of debt left by former President Bush and the economic meltdown. And all that's on top of the massive $60 trillion to $75 trillion of unfunded Social Security and Medicare liabilities.

To get perspective, let's shift our thinking into a parallel universe: Into Chris Buckley's satirical novel "Boomsday," which goes way beyond acceptable government policies. He offers a bizarre solution to reforming Social Security, a solution that forces all of us to focus, and not just on the out-of-control economics of retirement entitlements. He forces us to focus on the one core problem overshadowing all other global economic issues: Population growth.

Too many boomers and babies in this equation

Yes, population is the core problem that, unless confronted and dealt with, will render all solutions to all other problems irrelevant. Population is the one variable in an economic equation that impacts, aggravates, irritates and accelerates all other problems. Imagine you're on a call with the Oval Office:

"Listen to me," the frustrated U.S. president says on the phone in "Boomsday:" "I got a collapsing economy. I'm fighting four wars -- and looks like another is on the way." Agitated. "I got melting ice caps on both poles. Florida just lost another two feet of waterfront. Hundred square miles of Mississippi just went under." Faster. "I got a drought in the West the Interior Department says is going to make Colorado and Wyoming into another dust bowl." Breathless. "Pakistan and India are going at each other like a couple of wet cats. The CIA's telling me Israel's preparing to launch nuclear weapons." He's shaking. "I don't have time to take on a one-legged senator who says the solution to Social Security is for us to kill ourselves at age 70. The way I'm feeling now, I may shoot myself. And I may not wait until I'm 70."

Yes, you heard right. He's reacting to a proposal made by Cassandra Devine, a character in "Boomsday." She's a young, hot PR hustler running a "must read" blog. She resents the fact that her generation is getting stuck with the tax bill to pay Social Security benefits for retiring boomers. At first, her proposal was just a wake-up call, a shocker to get attention, to get Washington to deal with a hot-button issue politicians refuse to face. Her plan: Reduce population by encouraging suicides for aging boomers.

Bogus math and economic equations

OK, so suicide's a bizarre, unacceptable solution. But "Boomsday" does put the problem in sharp focus: No, it's not "peak oil." Not global warming. It's the population explosion: Too many people, old and young, boomers and babies too. More and more people filling up our little planet.

And while she proposes eliminating boomers, throughout history other writers, warriors and governments have dealt with the other end, limiting births -- from family planning, infanticide, even genocide. Yet few expect change at either end of this spectrum. Indeed, a United Nation's study estimates the world population will continue exploding, from 6.6 billion to 9.3 billion by 2050!

And not only will there be about 50% more people on the planet before today's kids reach the age of the youngest boomers today, but every year they'll also be demanding more opportunities, more benefits and more resources for their personal economic growth as well as for the expansion of their national economies. Warning: by 2050 America's 400 million will be vastly outnumbered by 8.9 billion others across the planet, all competing with America.

In short, within four decades human demands will easily double. That makes population growth the key variable in every economic equation ... impacting every other major issue facing world economies ... from peak oil to global warming ... from foreign policy to nuclear threats ... from religion to science ... everything. Population is the No. 1 variable in the economic equation.

Everybody loves that "rearranging the deck chairs on the Titanic" tag line... but the simple fact of the matter is that the above population numbers assure us that Social Security and Medicare will NEVER deliver as promised - this is a simple, real world example of the mathematical concept - "the exponential function" - and it wouldn't matter if we were talking about compound interest or weeds in an empty building lot:

Anything growing steadily has a "doubling period" and reaches infinity fairly quickly.  Seeing how we live on a finite planet we can safely conclude that ANY social or political policy that depends on the infinite growth described in the "exponential function" will ABSOLUTELY, POSITIVELY BREAK DOWN AND FAIL.  Social Security and Medicare are the 2 most obvious, but money supply, food supply, water supply, fisheries, timber, etc... also come under control of this mathematical LAW.

I listed some of the things a family man should do to avoid this 47 vehicle, interstate pile up in my January 4, 2oo9 post, "Back to Business".  Of course, I know that I am shouting into the wind and that most folks can be presented with of all of the data and sound reasoning in the world and then keep on eating or smoking, etc...  Now I know the scientific term for this:

"Incredulity Response".    (This is a fascinating article and is worth the time it takes to read it in its entirety.  What struck me, besides the obvious, was the concept's applications for trading and investing.)

In November 1987, Leach was changing trains one night in London at the King's Cross Underground station, a sprawling hub that throbs with more than 30,000 passengers during rush hour. He noticed the "thickest, greasiest, most cloying smoke I've ever seen." At first, it didn't make sense. There were no flames—just acrid smoke like the kind that belches from a ship's funnel. Almost without thinking, he found his way up to ground level and hurried to the exit.

Today, more than 21 years later, most of the memories have faded, but Leach can still smell the foul smoke and hear the wail of a uniformed railway worker: "There are people dying down there." For some inexplicable reason, as the fire spread, trains kept on arriving in the station. Meanwhile, aboveground, officials unwittingly directed passengers onto escalators that carried them straight into the flames. Many commuters followed their routines despite the smoke and fire. They marched right into the disaster, almost oblivious to the crush of people trying to escape—some actually in flames. Thirty-one people perished in the King's Cross fire, and incredibly, the Underground staff never sprayed a single fire extinguisher or spilled a drop of water on the fire.

Leach has a name for this syndrome. It's called the "incredulity response." People simply don't believe what they're seeing. So they go about their business, engaging in what's known as "normalcy bias." They act as if everything is OK and underestimate the seriousness of danger. Some experts call this "analysis paralysis." People lose their ability to make decisions.

In other words, I could lay out the statistical certainty of the eventual collapse of the very things that hold our economy, our very society, together until the "cows come home", and 90% of the savers and investors that read this - and actually have the means to do something - won't change a thing until it is too late.

"Incredulity Response", indeed.

Mentatt (at) yahoo (d0t) com

Catching Up

With 2 babies in diapers at home I have been a bit overwhelmed. Though I have much to say, I have had little time to say it.

So I will keep this brief.

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Gold has been on a tear, and even Silver has woken from its slumber for US$ holders. What is even more astonishing is that this has occurred in the midst of a US$ rally. Gold is at a new record for folks in the U.K., and I think a new record for the Euro (if not, it is close). What gives?

The U.S. Treasury market had it's worst week on record last week. Perhaps money is coming out of that market. If that were to happen in any significant way, Gold could be much higher.

I have been long Gold and Silver, and have been selling covered calls along the way. I will continue to add my savings to my Gold and Silver holdings, not Treasuries, and will buy on dips and sell the calls.

Silver has underperformed Gold for several years. This will not continue forever.

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The equity markets are threatening to break out, though we are now "in no man's land". Markets can disassociate from economic conditions, but not for long. Let nothing get away from you. If you are wrong, be gone.

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The "Tax Crisis" in California is just getting going. California will need a BIG Federal bailout, no "ifs ands or buts". If you are counting on a pension from the State of California you need to make contingency plans right away.

New York and perhaps Florida are not far behind.

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Wall Street's model of the 1990's and 2000's is irretrievably broken. Somebody should get ahold of John Thain and clue him in.

Thain justified paying huge bonuses to his minions by claiming:

“You have to believe there’s value in the franchise,” he said. “If you don’t pay your best people, you will destroy your franchise.”

The problem is his assumption was incorrect. There is NO VALUE in the franchise - just look at Bank of America's stock price and the fact that the ONLY reason it is not ZERO is that the bank received $20 billion in taxpayer money just last week. This is where a healthy dose of DENIAL comes in handy. After all, how can Thain be a "brainy master of the universe" if he and his team have no value?

During the 1990's and 2000's Wall Street's elitist scumbag's actually BELIEVED they were really, genuinely smarter than everybody else, and deserved 8 and even 9 figure compensation packages (I am not lumping in hedge fund managers in here. You might hate them for reasons even you are not sure of, but the hedgies did not take in 1 cent of taxpayer money). Those compensation packages will now be paid for, over time, by the lumpen proletariat - now permanently enslaved to pay for divorce lawyer fees, breast implants, million dollar bar mitzvah's for the kids, salon visits, etc...

Hell of a system.

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Obama's administration will have no impact on the economy in hist first term. More on this in my next post. (My sympathies to the "true believers"... Geitner (in for Paulson, who may have been all over the map but kept the banking system from collapsing... and yes I know a lot of the money was stolen in the form of bonuses, just remember MOST of the money was stolen by John Q. Public in the form of mortgages and loans folks had NO INTENTION of ever paying back) was on Bush's team, as was Bernake, who I think has handled things brilliantly...) Feel free to email me INTELLIGENT points of view that differ from my conclusions, but spare me the "true believer" BS.

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I have read several articles about "Peak Demand" for petroleum. As in demand for Oil will never be greater than it was in 2007.

Duh!!

This is a silly debate. Demand can NEVER exceed supply. EVER. And as old Willie famously said:

"A rose by any other name, would smell as sweet".

Does it matter which came first, the chicken or the egg? The economy will drop oil will drop the economy will drop oil will drop the economy will drop oil will drop the economy...

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Stay tuned.

Mentatt (at) yahoo (d0t) com

Stealing my stuff

President Obama has used the term "Era of Responsibility" to describe the times.

Readers of the American Energy Crisis know that I have called this Era "The Age of Personal Responsibility".

I don't know about you, but I am pretty impressed with the president (after all, great minds think alike). hahaha...

On another happy note, Caroline Kennedy has withdrawn from consideration to be appointed to Hillary Clinton's Senate seat.  Thankfully, enough clear thinking people got to the Governor. Long live our meritocracy.  

News from the States

New York State is borrowing from the Feds in order to fund the state's unemployment insurance fund.  

New York State’s unemployment insurance system, besieged by claims from laid-off workers, ran out of money on the first business day of the year and is borrowing daily from the federal government to bridge a fast-growing and potentially huge deficit, state labor officials say.

Despite paying lower benefits to its jobless residents than other Northeastern states, the state’s unemployment fund has been borrowing about $90 million a week from the federal unemployment trust fund, state officials said. The deficit has already reached $212 million and is expected to exceed $2.5 billion by the end of 2010, they said.

Those loans could wind up costing the state’s unemployment fund more than $100 million in interest and could result in a punitive tax on all employers across the state two years from now, state officials and experts on the unemployment insurance system said.

More than 500,000 people were collecting unemployment checks in New York State in the first week of this year, nearly three times as many as a year before.

"It's up to you New York, New York!!!"  Sorry, I am back... unemployment benefits being paid to 3X the number of New Yorkers as last year does not tell the whole story.  Many of these jobs were BIG PAYING jobs on Wall Street.  They ain't coming back.

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On to the Left Coast, and my personal favorite - California.

The state is spending so much money that Governor Schwarzenegger could fire every single California civil servant and still not come close to balancing the budget! Even if he also fired the other 149,000 legislative aides and people who work for the state’s courts or university systems (people not directly under the state’s control), he still couldn’t eliminate the deficit.

California's, San Francisco politico's - populist appearing but really communists in drag - have doomed California.  They were cool, hip, and politically correct. Math skills?  Not so much.

How big is California's budget hole? Try these numbers on for size.

If Gov. Arnold Schwarzenegger were to fire every employee in state government tomorrow, it would easily patch California's enormous deficit, right? Not even close.

But surely shutting down all state prisons would do the trick? That, too, would only get him about a quarter of the way there.

Now what if he were to close every prison and cut off funding for health care and other services for the poor? Now we're in the ballpark.

Schwarzenegger on Thursday delivered his annual State of the State address, and there was only one topic on his mind: A budget deficit that's ballooned to $40 billion through mid-2010.
How does the average taxpayer begin to make sense of that sum? Not easily.

"It's like a number that's out there, but it's so big that it almost becomes meaningless," said Adrienne Gates, a 50-year-old San Jose resident who keeps fairly close tabs on news out of Sacramento. "It's like hearing stories about how fast the universe is expanding."

Now just keep in mind that the intellectual scions of the California socialist movements are the folks at the controls of the train set in the U.S. Congress and Senate (I will reserve judgment on the new president with whom I have been happily stunned and surprised - still he has yet to actually govern anything...).

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It is the same story everywhere:  Previous state and local politicians made promises to unions that simply cannot be delivered upon.  Whether it is Ohio, or Michigan, New York, or California, the pension system, particularly at the state and municipal level, just ain't gonna be able to pay out as promised.  To make matters worse, our system encourages litigation and political profiteering to "solve" issues like this, further draining resources from the system.

The U.S. has FAR TOO MANY LAWYERS (and far too many people working in Finance, Insurance, and Real Estate) (and I have nothing against lawyers - much as it pains me to admit it, some of my best friends are lawyers).  Unfortunately, these folks are not going to "go quietly into that good night", and this activity is going to be a net negative for the economy.  By economic necessity these folks will result to extortionist activities - I mean they are lawyers, right?  They paid a lot of money to go to Law School.  They have no other means of making a living given the economy.

In the past, each business cycle recession ended, and life went on as it had for most of the post-War era.  Things are different this cycle, in my humble opinion.  At the end of this recession lies an energy crisis unlike anything we have had to contend with, ergo, there will be no recovery in the conventional sense.  Certain groups are better positioned to force feed their agenda than others: Police, prison guards, lawyers, teachers, nurses, etc... in short, with the exception of lawyers, municipal union workers.  Each special interest group will not concern itself with the issues facing the rest of the population.  

The municipal unions WILL sink the various states, cities, and counties.  The efforts of the U.S. excess lawyer population will be tremendous drag on commercial activity.  Police will want to put as many people into the system as possible.  Hell, firemen might even start a couple of fires.

You get the idea.

Good luck!

Mentatt (at) yahoo (dot) com

Correlation does not imply Causation

Yesterday's plunge in the equity market's had nothing to do with President Obama's inauguration. Zip. Zero. Zilch.

The man had done everything right so far - in his cabinet, his interactions with Republicans, in his constant communication to the American people.  NONE of this, though, has ANYTHING to do with the markets.  I know political types will always try to seek political advantage for their guy, but they are full of baloney.  

Of course, when the markets rally Obama's supporters will claim it was the confidence Obama engenders that brought forth the rally.  

It is my opinion that we are close to a short term bottom. I said "CLOSE" (and I define close as within 10 to 15%, I doubt we break 6500 Dow), but a rally could come at any moment (still, it would be a BEAR MARKET RALLY, not a new BULL MARKET) and I come to that conclusion by the simple fact that if you took the 3 big banks (JP Morgan, Bank of America, Citibank,) and dropped them to ZERO, and took GE to ZERO, the Dow Jones Industrial Average would "only" be down 442 additional points as a result.  And I don't think the Federal Government will let them go to zero.

The sad fact is that the financial index is down 80%, and it can't go below 100%.  Ergo, we are close to a bottom.  CLOSE, as defined above.

Good Luck!

Mentatt (at) yahoo (d0t) com

 

Good New and Bad News

The world's banking system is insolvent.  

Is that the "good news" or the bad "news"? You might ask...

Neither.

But it is what it is.

The good news is that it happened now, and not in the middle of a serious energy shortage.

Here comes the bad news.

The reason the system is insolvent is not GWB's, nor Alan Greenspan, or whoever your personal boogey man is, fault.

It is the collective default on loans WE applied for, and the lack of production relative to consumption of each and every one of us.  And it gets worse.

We did it to ourselves. We:

1. Watched too many T.V. shows in our formative years like "Dallas" & "Dynasty".  We wanted the lifestyle without the effort or luck that it takes to have it.  Speaking of which, Hollywood has turned out to be a disaster for our society on every level.
2. Wanted the government to care for our elderly, providing healthcare and a stipend to support them, without actually having to PAY for it.
3. Studied things like the Law (do we really need 10X the number of lawyers per capita as Japan?), Marketing (another fucking laugh), Economics (HAHAHALOLOLOL!) Finance (my own racket, and another great big zero in the contribution to human history), rather than understanding the laws of mathematics, particularly the EXPONENTIAL FUNCTION. Had we, as a people, and Congress, as governing body, understood this simple mathematical edict we would have known with certainty that exponential growth in a finite world is a mutually exclusive event/environment.
4. Spent more than we had.
5. Created other social programs with terrible moral hazards (Fannie Mae, Freddy Mac, etc...)

And we continue to deny our circumstances.

I watched a program today with the former Secretary of HUD, Henry Cisneros.  I watched in awe as Cisneros held to the absolutely delusional belief that the U.S. will have added 75 million residents by 2030 (25%) and THEREFORE the U.S. needs to do, XYZ, and this that and the other thing (Secretary Cisneros should take a hard look at projected population growth in Florida and the ACTUAL decline in population over the past 2 years).  Not picking on Cisneros here.  I think he is alright.  I AM pointing out that fallacious forecasts and projections of "growth" are not going to bail any company, firm, individual, municipality, etc...  out of their problems.

And the fact that the collective "we" are even discussing this as some kind of freaking positive is mind boggling.  Roughly half of REAL economic growth in the U.S. in the post WWII era has come from increased population, and like it or not, the resources are simply not there for the U.S. to expand its population without significant decreases in the average American's standard of living - so significant that the political ramifications would be unacceptable.  

Think about it:  The average American's standard of living is unacceptable - or we would not be stimulating, bailing out banks, cutting interest rates to zero... all of this is done to INCREASE the average American's standard of living and the aggregate to increase the size of GDP (growth).  

Now, the certain folks in government forecasting tell us the population will increase by 25% by 2030.  Simple arithmetic says that  either we increase the supply of Oil, fresh water, food, fertilizer, steel, etc... by 25%, OR the average American per capita lifestyle will need to decrease by the amount of the decrease in available resources multiplied by 1.X (X represents the increase in population as of 2030 - in this case 1.25 - 1 is the current population and .25 is the 25% increase).  Since I think that increasing the resource base is impossible, and given the fact that 60% of Americans describe their present economic condition as "struggling", my view that the release valve will be some type of political upheaval is not really a reach.

I gotta give Henry Cisneros a call (and I will, this week.  He is a reasonable guy).  We need to work another angle, because this just ain't the way out for the U.S.

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The Local Tax Man Cometh - and he is pissed!

I have been writing about the coming financial crisis at the state and local level for some time - and how our local politicians will CONTINUE to try to take the easy way out and raise taxes to punitive levels in an effort to put off the inevitable.

Try to keep your tax profile low, or lower it by avoiding states and municipalities that have promised the world - and will now have to extract it from you by force.

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If you think California real estate is in bad shape now, just wait till Mexico devolves into a "sudden collapse".  Sorry, that is not MY hyperbole.  It belongs to the U.S. Department of Defense in a recent report to the U.S. Congress.  

In addition to an immediate Oil shortage in the U.S., any such collapse in Mexico would doom the economies of the border states, and since California is already in bed with the Measles, Tuberculoses, and Pneumonia... well, the last thing this sick state needs is Bird Flu.  Keeping in mind that California is home to 1 in 8 Americans...

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With all of that, I think that I will be making some investments in energy, both equities and the commodity, in the next sell off - if one materializes from here.  See, if the Dow fell to 7500 my bet is 70/30 (70% probability 20% up, 30% probability 20% down) that the next 20% move would be up (I reserve the right to change my mind on a moments notice).  For me, this is as high a probability as I assign to market moves - I am NEVER 100% sure of anything.  And if I am wrong, I am gone.

Good Luck!

Mentatt (at) yahoo (d0t) com

Ouch! Ouch! Ouch!

Sales at U.S. retailers fell more than twice as much as forecast in December as job losses and the lack of credit led Americans to cut back on everything from car purchases to eating out.

Is there anything in the economic data that would (or should) give any comfort and support to the cheerleaders on CNBC?  Even GOLD has broken down, though not even close to everything else,  (If you have been selling covered calls each month you are in still in pretty good, and profitable, shape). Unemployment continues its trajectory, the Financials are bleeding to death in spite of the "forced" feeding of capital by the U.S. Treasury (or should I say "Government Sachs"?).

Here we are in the middle of the Northern Hemisphere winter and Oil inventories continue to build.  Well, Oil is not as important as a heating fuel - Natural Gas is now well over 50% of the heating market - but the decline in distillate usage tells me that the trucks are not rolling.  And why would they be?  Take a look at the retail numbers - retail sales have collapsed, 

Retail sales last month were down a record 9.8% compared with December 2007, the Commerce Department's data showed. Sales excluding autos fell a record 6.7% in the past year.

and are MUCH worse than they appear.  The margins on goods sold dropped far more than 9.8%.  In order to get the sales the retailers got they slashed prices more than Freddy Krugger in a bad mood. 

The markets are puking it all up and out, as expected, with the U.S. S & P 500 down nearly 10% in 7 trading sessions.  This is my kind of sell off.  Yes, we are going to go lower (in my opinion) but that will not happen in a straight line - otherwise, all one would have to do is come to work, short everything, and sit back and collect billions, and that just ain't how things work - I like to go long after 7 to 10 day market selloffs for a trade.  But that's trading (I don't give specific advice or share my positions in equities in this forum).  The data tells me that we are still in the grips of deflation and GDP contraction, and that these are going to get worse.  I can comment on the commodity market (I hold no commodity registrations) and I will tell you that I think we are close to the point where I will be selling puts and trying to buy some stuff (notice I did not say which and at what price).

Lastly, stock market crashes come from OVER SOLD conditions, not because the market is too high.  I am not saying the market WILL crash, only that it CAN crash.  I would define a 8,000 Dow dropping to 6,000 in less than 1 week as a crash.  I also believe we could see a 6,000 Dow WITHOUT a crash, just slowly grinding your #$%! off.  In short, a trading range between Dow 6,000 and Dow 9,000 for the next 5 years is not unreasonable (in today's dollars, that is - the question is: Will we have inflation? And when? If not, in a sustained deflationary environment the Dow could go a lot lower than 6,000 - and in a hyper-inflationary environment the Dow could go a lot higher than 9,000.  Those are nominal, not REAL, numbers).

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Everyday, I get more and more excited with Barak Obama.  He is pissing off people on BOTH sides of the aisle (but especially those in his own party) - a sure sign that he is onto something.  I am still deeply sceptical of the "Fiscal Stimulus Plan", which is surely going to lead to more "bridges to nowhere", influence peddling, and outright thievery, but what can I do?  I am just trying to make a living in a crazy world.

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New York voters prefer Andrew Cuomo to Caroline Kennedy in a recent poll.  I hope Governor Paterson does not pander to Kennedy's monied connections for the 2010 election, but I hold out little hope for that.

Caroline Kennedy should not be appointed to anything.  If she runs for office and wins, well, good for her.  APPOINTMENTS should only go to those with a lifetime of service and/or accomplishment.  If Ms. Kennedy's last name was "Smith", would we even be having this discussion? 

Governor Paterson: Do the right thing!  And it doesn't have to be Cuomo, but he should be at the top of your list.

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You heard it here first:  The Banking industry will need another "bailout" that will total over $1 TRILLION.  Housing has not bottomed, not even close.

Good Luck!

Mentatt (at) yahoo dot (com)

WOW!!!

"We are going to close Guantanamo, and we are going to make sure that the procedures we set up are ones that abide by our Constitution."  

President-elect Barak Obama

Wow!  When I heard that, I said to myself: I wonder if anybody caught that, or was it a Freudian slip?  A Democrat, frequently accused of being a Liberal, cited the Constitution, and what's more, threatened to "abide" by it?  

I gotta tell you, that that kind of talk just makes me go a warm, wet, rubbery one (as in tears... you sick b---tard, you!).

I think I would faint if he started talking about appointing members of the Judiciary and "abiding by the Constitution" in the same sound bite.

And talk about straight talk.  When asked if he would appoint some large campaign contributors to Ambassador Just listen to this:

“There probably will be some” political appointees serving abroad, Obama said at a news conference yesterday. “It would be disingenuous for me to suggest that there are not going to be some excellent public servants but who haven’t come through the ranks of the civil service."

Holy Cow!  You go, Mr. President-elect.  Tell it like it is!

I don't want to gush, I know his team, while competent, are very much of the operative flavor that will push the system's agenda - but it has been enjoyable so far.

Hey, you never know.

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Wall Street's dirty little secret got crushed, even though it never made it out of the bag.

Debt trading, unlike equity trading, is not terribly transparent.  There just isn't that much money in trading equities - unless you are a hedge fund.  Broker/dealers ("BD'S), registered trading firms, just can't make the kind of money they need to compensate for the risk trading equities.  Bond trading, particularly MORTGAGE bond trading, was literally like shooting fish in a barrel.  Until it blew up.  Believe me, the Treasury market is very transparent - and ain't nobody making much of a living trading Treasuries at the big BD's.  Making a penny or 2 a share on equities, or what used to be called a "tick", a 32nd, on a Treasury bond just doesn't pile up the money like 2, 3, 4, even 6 % of a CMO does.  Or should I say, "DID"?

We sent our "best and brightest" (HA!) to our most exclusive, and expensive, business schools... so that they could come out and shoot fish in a barrel until the system imploded?  Yep.  That is EXACTLY what we did.  All that brain power and NONE of it used for anything that turned out to be even remotely productive.

Hysterical!

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The problem for Detroit is that we don't need as many new cars as they are producing.  Blame the economy, blame the decline in fuel supply, blame consumers that have decided to save rather than spend... No matter what or who you blame, no bailout is going to fix this issue.  The MARKET is going to fix this issue.  That problem, as Ron Paul pointed out, if politicians admitted that they do not have the power to fix "problems" like this, they would appear impotent and superfluous.

Appear?!!

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There will be several more Bear market rallies in the stock market this year.  Wanna know when they will happen? Me, too.  One or 2 could even be the 30 to 50% variety.  My bet is that it will happen from a lower point than where we find ourselves.

If you are not a trader, you are probably better off in short term (less than 5 year) corporate paper and non leverage commodities.  Unless, of course, I am wrong.  In which case you wouldn't be.  I have an uncanny grasp of the obvious, no?

Good Luck!

Mentatt (at) yahoo (d0t) com

Toyota accepts Peak Oil in its corporate strategy

The economic/banking collapse has masked the Peak Oil problem - but only temporarily.

Now Toyota has joined several other major international corporations in accepting the inevitable:

“Last summer’s $4-a-gallon gasoline was no anomaly, it was a brief glimpse of our future,” Irv Miller, U.S. group vice president of environmental and public affairs for the Toyota City, Japan-based company, said in the statement today.

“We must address the inevitability of peak oil by developing vehicles powered by alternatives to liquid-oil fuel, as well as new concepts, like the iQ, that are lighter in weight and smaller in size,” he said. “This kind of vehicle, electrified or not, is where our industry must focus its creativity.”

Notice the nod to "Peak Oil" in there?

See, major corporate manufacturers like Toyota have a 5 year productive plan.  It is impossible for them to move much faster.  And even with this admission, the vast majority of their cars will have an internal combustion engine.

Right now, there is little to no new investment in productive capacity in the energy space.  That means that the depletion (every year production in the world's existing fields declines - every year the energy industry must increase investment in productive capacity to make up for that decline, as well as any increased demand) issue will overwhelm the demand issue at some point in the near future.  If that event where to happen in the near term we could see inflation in energy assets even while the balance of the economy is in deflation.  

Boy, getting that right will do wonders for your net worth.

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I gotta say, I am so very impressed with Obama so far.

He continues to back up hard on his campaign promises, and appears to be leveling hard with the American people, especially the people that backed his candidacy.  

I did not vote for Obama because I did not believe his campaign rhetoric was truthful or in the best interests of the country.  Now, it appears that he was doing what was necessary to win, but is willing to eat his words to do the right thing.  I am sure he will be getting blasted from several directions because of this, but not from me.  I hope he continues on this trajectory.

I would like to point out to Obama's supporters in the fall that his tax rhetoric was suicidal, and I thank the heavens it was just campaign talk to assuage the more developmentally challenged of the Left (but they do vote) and I said as much in this forum.  What is good for the economy in bad times is also good for the economy in good times, but in good times government can do bad things - like confiscatory tax policy to seize money from the opposition to pay off special interest groups or spend wildly on ill advised wars - that get glossed over in good times.  To those morons that think the U.S. will exit Iraq before the end of Obama's second term - it must be nice to be so detached from political reality (and I opposed the invasion of Iraq and wrote GWB to express my position.  He did not write back.).  Afghanistan?  The U.S. will be there until we run out of money. Just take  look at German, Japan, Korea...        

The Obama Administration appears to be the Bill Clinton administration, second act, but with a more engaged guy at the top regarding our economic predicament.  And I am OK with that.

I just gotta wonder about the crazies in his constituency... Will they and the media turn on him, now that he appears to be much more measured (with the exception of his fiscal stimulus plan, which I will withhold opinion on) and rational in his approach to the economy, tax policy, and foreign policy?  Will the others turn on him when the economy does not "turn around" as expected?

His move to the center was more dramatic than that of any president-elect in the post war era. Are we witnessing THE great politician of the 21st Century?

Amazing.

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I am a BIG Arnold fan.  That said, he has been an unmitigated disaster as California's Governor. I thought he was nuts for seeking the office in the first place.  Politics takes practice.  Corporate CEO's and State Senators, Congressmen, etc... have the kind of experience that might lend an understanding of what needs to be done.  A-List actors?  Not so much.

I cannot see how California can correct their budget issues through tax increases and spending cuts.  California will absolutely, positively need a Federal bail out.  There is NO OTHER WAY.  Many municipalities in California will file Bankruptcy under Chapter 9 of the Federal Bankruptcy code, but states cannot go Bankrupt. ergo, the bailout.  New York is right behind Cal.

California, home of the tax-and-give-it-away, San Francisco Left that dominated its politics (from Diane Fienstein to Willie Brown) is about to see the chickens come home to roost.  Guess who gets to pay for it all?  Non Californian, hard working, frugal people like you and me.

Mentatt (at) yahoo (d0t) com

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Libertarianism or Fascism? (Again)

I wrote this piece on July 20 of this year.  Considering what has transpired in the last 90 days, from Palin to Kennedy, from Paulson to Madoff, from Obama to the Second Coming...

Libertarianism or Fascism?
With the state of the U.S. Budget, U.S.$, and the coming U.S. oil import disaster... We have some political upheavals to look forward to. But which way will the wind blow?

FDR Liberalism is DEAD. There is a dead body walking around, but it is DEAD just the same.

GWB's version of Conservatism (His group, founded by Strauss, hijacked the moniker) is DEAD. The body has already begun to stink.

The minor movements of Feminism and Race Based Preferences are going to wink out of existence without anybody even noticing them. Sorry, Gloria Steinem, fish may not need bicycles, but women will need their families - desperately. Biology is destiny, and thankfully so because Social Security will cease to exist in the lifetime's of most reading this. The new "Social Security" will be the same one we have had for time immemorial - your children. This will be so irrespective of the political sensibilities of aging, childless feminists.

"We can evade reality, but we cannot evade the consequences of evading reality." Ayn Rand

In the permanent energy crisis, their will be no "Retirement" for the masses. The issue will more likely be what will you do when you are too old to care for your self? (Not that "Retirement", in the late 20th century/early 21st century American definition appears to be such a happy time. I live in South Florida, home to the mother of all retirement populations. I can only share with you my interpretation of of my personal observations... these retired folks do not look terribly happy to me. To my eyes, they appear miserable. Of course these individuals might have been miserable when they were young, so this is hardly empirical.)

So many people are looking to our GOVERNMENT for answers to the oil crisis, the budget crisis, the mortgage crisis, etc... "We should do this. They should do that." I wonder when it will occur to the very folks that think government is/has the answer.... Exactly WHO got us into this fine mess in the first place? And exactly what resources do they suggest the government use to get us out? The U.S. is in DEBT up to its eyeballs. Our citizens actually believe that they are ENTITLED, regardless of how poorly they have led their own lives, to a retirement, of at LEAST 20 years of nonproductive consumption, fully funded for their healthcare and their material needs.

Go ahead! Gain as much weight as you want! Diabetes? Bad back? Erectile dysfunction? Not to worry, the government (our new Lord) will provide. You don't have to wear a condom! Drink and drive, its fun! Smoke! We'll take care of your healthcare bills. Can't work (or just don't feel like it)? No problem, we will send you a disability check. Can't save money? Bad credit? Poor work history? No problem! We'll give you a mortgage with NO MONEY DOWN! And if you can't pay? NO PROBLEM! It wasn't your fault ANYWAY! It was those scum bag speculators... Congress will fund a NEW program to keep you in your home with money they don't have, borrowed from people they have no intention of paying back, and if those pesky lenders want the money back we will simply bomb them into the stone age or devalue the currency and STEAL it from them.

All to fund programs supported politically by people who claim they HATE war!!! Give peace a chance!!! But fund our social programs or "we will g-d damn bomb ya" (George Carlin), or steal the food right out of your mouth. To make ourselves FEEL better about all of this, we will send a couple of young people over to your neck of the woods in Peace Corps garb. (I received an email today from a reader with this quote:)

"Sometimes we are so caught up in
who's right and who's wrong
that we forget
what's right and wrong." - Unknown, but Thanks, Lane!

Folks, we are going to have to get over this, one way or another. Phil Graham is correct. We HAVE become a nation of WHINERS. Where the F$#@@! is John Wayne? The end of the Oil Age is the beginning of the Age of Personal Responsibility.

(Here comes the email railing me about "Corporate Welfare". Brother, I am going to cover the disgusting way that corporations have evolved in another post... but to accuse them of being the BENEFICIARY of the government's largess "is what is known as being STUNNINGLY full of shit" (again George Carlin. I seem to be channeling George today.) Government has steered corporations to what they are today precisely because they are just SO PERFECT a machine for extracting income taxes from the masses, which is then used to create these silly programs and "American Interests" that need to be defended in the first place. Corporations are the funding source for EVERYTHING good and bad in the system. Think about it, the money AIN'T coming from single mothers, hitchhiking hippies, college students, or the Rev. Al Sharpton.)

How is it that the NeoJerks stole the 'Conservative" mantle, and nobody noticed? How is it that the South was controlled by the Racist Democrats during the 1950's and '60s, but now they call themselves Conservative Republicans? How is it that the Northeast, you know, the political descendants of the Authors of the Bill of Rights, went from "Patrician Republican" to "Liberal Democrat"? Are the Republicans the Party of Lincoln or the party of G.W. Bush? Are the Democrats the party of Ralph Nader or George Wallace?

Folks, these are just labels, and the little meaning that they had just got SQUASHED by the new political realities of what is likely to be the Mother of All Recessions perpetrated against a people that have become dependent on government to guide them through their average day.

So what will it be?

San Francisco confiscatory liberalism is DEAD. Bush and Cheney's silly foray into outrageous spending has bankrupted the nation - whatever political movement they represented, call it what you will, is DEAD. Both movements lay bled out at the hands of the Oil Depression.

Will we devolve into a fascist state in which the masses gladly give up what civil rights they have left in order to make a run at the status quo? Or will we accept our responsibilities and keep our individual liberties and fight for the liberties we lost?

End of July 20, 2008 Post.

Caroline Kennedy vs Sarah Palin

Why is it that the media and the Left think Caroline Kennedy has the credentials to be Senator - she has no experience in public life whatsoever - yet the media poured scorn over a self made woman from a working class background that came to be ELECTED GOVERNOR of a state and was the first woman to run a national Republican ticket?

The American people continue to be bamboozaled by a bunch of barley literate, frustrated and failed authors.  (Yea, I know Palin is a fundamentalist...)

As the Media accepts Kennedy's APPOINTMENT and rejects Palin they tip their hand as the biased, elitist scum bags I always felt they were.

Ah, but I am just a working class sot... what could I know? How dare I question my betters?

Mentatt (at) yahoo (Dot) com

Jobs, Jobs, Jobs

The ADP report on the jobs numbers did little to buttress the optimist's argument, and the market took it on the chin, down nearly 245 Dow points.  

As I said in a couple of my recent posts... We had a Bear Market rally. You can trade Bear rallies, just don't buy it and marry it.  But how do you know a Bear Market rally from a new Bull Market?  You don't, but this market was not a difficult call.  I don't give specific advice, but I can give you some general stuff to look for when trading... If the market is up 8 out of 10 days, and you were not in it this is not the time to get in.  There is an old expression: "If you did not get invited to the wedding don't go to the funeral".  Profound, no?  I look for "short" opportunities after 8/10 up days... but don't short if you don't have the discipline to cover quickly.

Conversely, when markets are down 8, 9, 10 days in a row (or 8 out of 9 days, you get the ides) that kind of oversold can be worth a long trade.   This is ESPECIALLY true in commodity markets, because unlike individual stocks Oil or Gold or Corn CANNOT go to ZERO.

Right now we are in no man's land.  Tomorrow the government could do something outrageous and squeeze a shorts head right off, a la Volkswagen, so go research how bad that one got for the shorts before you go and short anything (when you are long, provided you don't leverage, you cannot lose more than 100%; that is not true when shorting).  And things have not gotten ugly enough to go long.  

Patience.  The moment will come.

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Oil inventories were nothing but bearish.  Bearish for Oil, bearish for stocks, bearish for the economy, bearish for inflation... there was a lot of Bear sh-t to go around.  The decline in investment into productive capacity WILL overwhelm the decline in demand at some point in the future - but not yet.  Hold your powder.  When things  are making you sick and start to believe the world really is going to come to an end... THAT IS WHEN you buy oil futures.  I believe that this spring might look a lot like that.  Don't stand in front of freight trains.  Its really, really unhealthy.  Worse than cigarettes. 

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Here we find an analyst with a marvelous gift for the understatement:

If unemployment can be held under 8%, we believe the housing market will start a slow recovery beginning in 2010," Stevenson said. "However, if the bears are correct and the U.S. experiences 9% [or higher] unemployment in [the second half of 2009] or 2010, we believe the housing market could experience a meltdown even more severe than the one we've experienced in the past few years."

Got that? (You really should read the article in its entirety).

Under no circumstance will unemployment be held at 8% or less.  I got a better chance of waking up tomorrow with black hair (you've heard of salt & pepper? All I got left is salt).  9%?  No chance there, either.  10% is a minimum, 12% the most likely, and 15% is NOT out of the question.  

Housing, banking, and equities have gale force winds in their face.

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The next big blow up and bail out is most likely to be the Pension Benefit Guarantee Corporation, a federally sponsored institution.  

Pensions are more than underwater.  They will never make it back to shore.  This includes pensions for municipal workers.

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The rate of change in the American, and world, economy is nothing short of breathtaking.  If you are an investor/savor, business owner, or support a family, there is not a day where you can take your eye off the ball.  There will be a lot of spin, spin, spin out there, but tune in for a no BS assessment from yours truly.  Not that we will always be correct - we won't. But we actually do think about this all day, every day.  Clearly, few of the folks in front of the microphones can claim as much.

Stay tuned.

Mentatt (at) yahoo (d0t) com

P.S. I am a bit behind on my email... Our daughter is 3 weeks old, and with 2 kids in diapers, some things just are not getting done.  Bear with me. 

$4 is DUMB - McDonalds

I just LOVE this advertisement.

My brother called me yesterday asking me if I had seen it, and remarked - "Dad would be turning over in his grave if he saw one of us spend $4 on a cup of coffee!"

How true.  Good thing I quit Starbucks back in 2000.  The market had just crashed.  Business had gone off of a cliff, and I am waiting in line with a bunch of other brain dead consumerists waiting pay $1.82 for a "Grande" when my mind got away from me.  At 2 bucks a day I would spend nearly a grande per year on dirty water, I thought to myself.  And with that I turned around and went directly to the free coffee my clearing firm at the time (Bear Stearns!) provided for their customers.  It wasn't a "Grande", but it was "free" (the clearing fees were absurdly high... ostensibly for, get this... Bear's financial stability!) - and "free is for me".  And with that I gave myself a $1,000 take home pay raise.

Ah, but it was not to be.

My oldest thought nothing of ordering a frappy/poofy/machi/euro/fluffy fairy coffee - for $5, and being the overindulgent, slightly-traumatized-from-my-working-class-origins-so-I-spoil-my-kids Dad, I continued to hand over the dough while I waited in the car, refusing to indulge myself while my son happily lapped his yuppie concoction, blissfully unaware that I pretty much resented everything that Starbucks stood for, when...

Epiphany!

I summoned the young pup one fine morning and told him that from this point on he was going to get an allowance of sorts.  I say "sorts" because in order to get said allowance he would have a list of chores and responsibilities to complete (since we spend half the year on a farm this is no small requirement) - and complete them he did.

Some time last year we were on our way to the movies when my son asked if we could stop at Starbucks... The moment of truth had come!

When we got there he asked me for some money for his "fairy drink" (sorry, you can take the boy out of the neighborhood, but you can't take the neighborhood out of the boy - and in no way is this meant as a derision to the Gay community - fairy/gay is SOOOOO 1960's - it IS meant as a derision of materially competitive community).  I told him "You are on your own.  You get an allowance.  If you want to spend it on $5 cups of dirty sugar water, that's your business".

After a moment of SHOCK, the pup collected himself and said "Are you paying for the popcorn?" (remember, we were on our ways to the movies).  I said, "Of course". And he replied "never mind, I don't need to go to Starbucks".

Even a 15 year old knows that "$4 is dumb", and my father can rest easy knowing his namesake was a chip off the old block.

Mentatt (at) yahoo (d0t) com

The "Hope" Rally

Bear market rallies happen.  And they feel great, just about the best feeling you can have with your clothes on.

We are having one now.

You can TRADE it, just know what it is.  My bet is that this one is getting a bit long in the tooth.  I have been lightening up on my beloved energy equities.  There will not be any energy shortage while the economy is contracting this fast, and the "shoulder period" is only a couple months away.

My bet is is that when the market realizes how far away a recovery actually is that it will "sh-t the bed" (that is technical trader speak for a sharp sell off).  At that time, I will be looking for the stuff I want to own for next year.  Doesn't mean I am right, but that is what I am doing.

Good luck!

Mentatt (at) yahoo (d0t) com

Florida is going to get its revenue at the point of a gun

In my last post I urged my readers to "be perfect" (no ones perfect, I meant don't cause yourself any trouble) because, among other reasons, the various local, state and federal governments need to raise revenue and need to justify sill budgets.

The state of Florida is going to increase the traffic fines.  You can be sure they are going to increase the aggressiveness of the enforcement.

Law enforcement is like any other government agency.  It has a budget, it wants the budget to be bigger, and it will spin and P.R. its agenda to get it.  The U.S. has the largest percentage of its population in prison in the history of the world.  As a deterrent for non capital/non violent crime, I really do not see the difference between a 10 year sentence and a 30 year sentence.  The budget sees the sentence as costing 3 times as much.  Our prisons are filled with people long past their "criminal menopause", and it is costing us a fortune.

I have 2 suggestions:

1. Don't let it be you (right down to driving within the speed limit).
2. Tell your representative you don't want to pay for keeping people in their 50's, 60's, and 70's in prison for non violent crime beyond some maximum - say 10 years.  The cost/benefit to society does not justify it (and we will not be able to afford it in any event).

Of course, few in Law Enforcement or the Judicial system are going agree with this.  These guys wouldn't know a cost/benefit analysis from a urine analysis.  

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Still listening to those jerks on CNBS telling you to look for a recovery in the second half of 2009?  

There is little demand for automobiles.  So much so that Toyota is shutting down production of new vehicles in Japan.  That ain't a sign in any future near term recovery.  And bodes ill for Detroit.

You see, the spin, spin, spin doctors are at work trying to convince the American people what is wrong in Detroit.  It it management's poor decision on model selection?  Or the UAW's compensation.  Let us use our brains and pen and paper.

Japan and Detroit sell a similar number of cars.  Japan's total net profits in 2007 - about $9 billion.  Detroit's net loss - about $ 38 billion.  What is the biggest overhead component for Detroit?  Worker compensation.  Hmmmmm... 5 corporate jet, while indefensible, are a drop in in barrel compared to UAW compensation.  Sorry, any junior analyst with his first pocket protector will get this in about 5 minutes.

Oh, and the argument that Detroit makes lousy cars?  I have owned only Ford's for over 20 years.  I own 3 Ford's right now. I have NEVER had to bring in one of my Ford's for ANY major service with less than 100,000 (that's what I have on my 2000 F-150 right now, and I use it to tow stuff with).  I love my Ford trucks and minivans.  I know it is anecdotal...

Meanwhile, auto sales continue to plunge.

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China and Russia are on the verge of significant social unrest, perhaps revolution.  How do I come to that conclusion?  Food and employment.  Every society is just 3 meals from revolution, and the coming worldwide economic wipeout is going to hurt these nations more than most others, and their repressive regimes have wound the spring.  Nothing is a certain, just varying degrees of probability...

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Read this:

"The End of the Financial World as We Know It."

If you work in the financial service biz you are part of the "dead men walking" support group.  The entire industry is facing massive downsizing, many won't survive it, those that do will wish they went back to Veteranarian school.  Believe me, I am going to miss the action.

Good Luck!

Mentatt (at) yahoo (d0t) com

Back to Business

The market has rallied 1500 Dow points in the past several weeks. This would be an EXCELLENT time to lighten up on equities. Gold has rallied 20% in the past several weeks, I am still long Gold and Silver and I continue to sell covered calls against the positions.  Oil has had a 30% rally from the bottom, and I missed that rally.  I won't be chasing Oil, until I do.  Oil ain't for amateurs.

I know the market is always right... but I think the market is making a mistake.  Call it the January effect, or the Obama Bounce, or the Stimulus Shuffle... Call it what you like, but I am not buying it.  I might TRADE it, but I ain't buying it.

Headline unemployment is "only" 6.5%, but total unemployment of those working part time and wanting full time work, those too discouraged to look for work, and those that ran out their benefits is on the order of 11.8%.   

Anybody believe that?  Not me.  And now Obama's team is warning of 10% headline unemployment?  HAHAHAHA!!  Not even in their dreams.  12% is a minimum peak, and 15% is not out of the question.  This also does not take into consideration the millions of employed taking big pay cuts to stay employed.  You know what that means for the stock market and the US$ (and yes I know what is bad for the US$ is good for the stock market... THAT'S how bad things are going to get...)?

The problem is that that old safety net, CASH, might not be so safe.  It is not outside the realm of possibility to go to sleep one night and wake up to a US currency crisis.

So what should you do?  Good question.

If you have the resources:

1. Own a home in the country that is fully stocked to weather a year or more.  You won't regret this.  They are relatively cheap, and if I am completely wrong you can always sell it for a small to moderate loss.  This is the price of wealth (and if I am correct productive agricultural properties will go up substantially in value).  
   
2. Own Gold and Silver. Hard bullion and paper bullion both work in my opinion.  But don't take my word for it - hold some in hard bullion in a safe place.
3. Own foreign currency in the form of Exchange Traded Funds ("ETF's"), or on deposit in foreign banks.
4. Own sovereign debt bonds either directly or in ETF's. Diversify this.  You don't want to be holding only Argentina bonds if they default.
5. Own a small business that sells or services "must haves" not "want to haves".  Guys in my business are "dead men walking", guys repairing shoes and dentists are not.  This is no time to swing for the fence trying to get rich. Unless you really have an anti gravity machine or Star Trek Transporter...  It is time to survive.
6. Own corporate bonds rather than stock.  Dividends can be cut, stocks can get cut in half - or worse.  Bonds MUST pay the stated interest and return principal or go BANKRUPT (not that that can't/won't happen - it will.  But most corporate bonds are selling at steep discounts to their face value, presumably to compensate investors for the risk of default.  If you don't know what you are doing, and that means 99% of investors, use a fund manager or an ETF).
7. Cut your overhead on EVERYTHING.  Go through your cell phone bills, insurance bills, cable, you name it, and call them and start making noise.  My bet is they have a "new plan" that will save you money.
8. Be perfect.  Don't speed when you drive or run a red light.  Don't drink.  Don't use drugs. Don't philander. Pay your taxes on time and in full.  Be PERFECT.  In times like this you don't need to wreck your car, go through an IRS audit or divorce, or hand yourself a big legal bill, and you don't need any stress.  This is just good sense at ANY time, but especially now.  The various government agencies are experiencing budgetary constraints and are going to come down hard on us to try and raise revenue.  Keep your head low - a low profile never hurt anybody.

As you can see, I think 2009 and 2010 is going to be a time to SURVIVE.  I keep telling my readers not to listen to those nice folks on CNBC.  I don't think we have a shot in hell at a recovery in 2009, and only 50/50 by the end of 2010.  If I am correct on housing - and I believe that housing is 3 years MINIMUM away from bottoming and another 20 to 30% in price - the 50/50 2010 will prove to be quite optimistic.  Think about that... another 20% decline housing and the banks will need an additional TRILLION $$$, at a MINIMUM (remember, they are already insolvent)!!

If a recovery does not materialize by the end of 2010, it may never come (at least in any way you might recognize it).  During the next 2 years, the world is going to consume 60 BILLION barrels of Oil, or about 5% of ALL of the ultimately recoverable oil on the bloody PLANET.  Once you use it, its gone, and my bet is that that is the point where the U.S. Oil import crisis will be in full swing.  Hard to have a recovery AND an energy crisis at the same time.

That would mean another 1974-75 experience for Wall Street and Metro New York... collapsing real estate prices and the eventual bond default for New York City.  An implosion in the Travel & Leisure space. An explosion in the cost of food.

Food is already too expensive for over 10% of the American population, as 1 in 1o Americans now depends on assistance (formerly known as food stamps) from the government to pay for food.  What will that number be in 2011? 1 in 5?  1 in 4? If my unemployment projection is even close 1 in 5 (60 MILLION Americans) is a sure thing, and the 1 in 4 very likely (75 MILLION Americans).  Let's just say that conspicuous consumption would be in poor taste, and perhaps bad for your health.

The point is that the U.S. Federal Government has decided to go "All In".  They don't want to spend $3 Trillion only to find that it is not enough.  They are going to spend WHATEVER it takes - "In for a penny, in for a pound".  That also means that as long as the US$ holds, the government will keep spending.  Ergo, the US$ is doomed, despite last quarter's head fake.  That means you can't sit like a "deer in the headlights", or you are gonna get run over.  

Every 100 to 200 years this stuff happens.  Its normal.  But it SUCKS to be you if you are the one being led up to the guillotine. 

And Our quotes of the day...

"When you come to a fork in the road, take it."  Yogi Bera

"Sunshine on my shoulder makes me happy" - John Denver

"Cleanliness is next to G-dliness" William Shakespeare

"F--k you" - Richard Nixon

Good Luck!

Mentatt (at) yahoo (dot) com

 

Bush and Kennedy

I had a good laugh at the comments made in my last post comparing the qualifications of GWB to Caroline Kennedy (BTW, my point exactly).

I had this to say in my May 28, 2007 post:

I am not suggesting American life is, or should be, fair. Only that we have deceived ourselves into believing that it is. Life has always been a competition with its resultant “winners” and “losers”. If you are a self-made “winner” that came up out of the muck and mire, you understand this without further explanation. If you were born into a “winner” family, advantages such as private schools, summers on the Vineyard, a semester abroad, before beginning your career on Wall Street, the Law, or Medicine were the norm. Our very own George W. Bush, an admitted “C” student, was accepted to the prestigious Harvard Business School. Considering how limited seating was at HBS my bet is that some less-well-connected straight “A” student was the “loser” in that competition (it gets even better… “W” once said in commenting on performance enhancing drug use by athletes that “there are no short cuts to success” – "W" was a Yale legacy student (his family were Yale Aumni)! Hypocracy knows no bounds.) If you were born into a “loser” family, your experience was somewhat different than W’s. Still, “losers”, at least in America, did not starve. The rest of the world’s “losers” have not been so fortunate.

System after system in our society encourages people to "choose their own kind".  95% of the black vote went for Obama.  White guys promote white guys in corporate America.  A primary qualification of Bernie Madoff as far as his customers were concerned was that he was a Jew.  All this works out fine if your "affinity group" is in a position of power.  If you are a poor black or white trash (like me) teenager trying to get a job or accepted to college... well, not so much.

We have some serious issues to contend with and I think that the people of New York have thousands of more qualified and deserving folks than Caroline Kennedy to be New York's next Senator.  In 2009, The U.S. will likely have a budget deficit of - get this - $2 TRILLION ( I feel like Dr. Evil from Austin Powers when I say that) and New York is going to appoint a person that has NEVER BALANCED HER OWN CHECK BOOK????!!!!

I can't take it anymore!!!!!

Mentatt (at) yahoo (d0t) com

Gag me with a Silver Spoon

Judging by reports in the press, Caroline Kennedy is the odds on favorite to be New York's next Senator.

Is it me?  Am I the only guy wondering how a person that:

1. Never held a REAL job.
2. Never repaid a student loan.
3. Never applied for a mortgage, nor made a mortgage payment with hard earned income.
4. Did not have to sweat getting into the college of their choice.
5. Never made payroll.
6. Never started a business.
7. Did not serve in the military.
8. Did not teach or work in academia.
9. ALWAYS had domestic servants.
10. NEVER had to APPLY for a job.

Is the best person to represent the common New Yorker?  A JAFO? (Just Another F7^%#@! Observer)  AGHGHGHGHGH!!!!!

Caroline Kennedy is just another member of the lucky sperm club (albeit with a rather famous name), and she can't even string a sentence together without saying "you know" every 5th word. After lambasting GWB for the past 8 years over his painful syntax exactly why is this pearls and loafers, silver spoon fed, Trust Fund brat getting a pass?  Is this what our military men and woman are FIGHTING and DIEING for???!!!

MONEYMONEYMONEYMONEYMONEYMONEYMONEYMONEYMONEYMONEYMONEYMONEY

And to lend a hand in connecting Old Camelot with the New Camelot.

Yea, well gag my working class ass with a Silver Spoon.  I shoulda been born rich instead of so damn good looking...

Mentatt (at) yahoo (d0t) com

A New Day

Government policy, or lack thereof, is the biggest input into the economy.  

I received an email berating me for my "continued haranguing" of the Left.

Dear Sir or Madam:

I only harangue the Left because the Right is no more.  I would harangue them too, only they are too busy destroying what little is left of themselves, so why should I bother?  The Republicans got "fired for cause" (and I am a Libertarian Republican) and they deserved more than the ass kicking they got, they deserve to be ground into the turf.  Parties can only see as far as the next election.  Many Republican operatives knew quite well that the demographic trends were going to overwhelm their party, but back in 2o04 they cleverly saw a way to squeak through a crack in the door and then proceeded to poison the well and sow salt in the fields.  The coasts are gaining in population (Blue States) and the middle of the country is emptying out (Red states). American's are becoming more and more educated, and with education comes a belief in science, not fundamentalism.  The population is aging, and with age comes greater reliance on government social programs - especially in a society with ZERO savings - and social programs = the Left.  Believe you me, the Republican operatives saw this all too clearly... and correctly realized that the Right had painted itself into a corner, spent like the Left, and then as the Titanic was going down dispatched life rafts with the command "Bankers and Brokers first!" bellowing from the megaphones.  The Right knows that it will have to reinvent itself over the next generation - it WILL take that long - IF it survives.

I am not whining, just calling them like I see them (I worked for campaigns when I was younger, even held elective office once - no thank you!).  If you are still a Republican (few besides me admit this in public these days) my bet is that you will either die out or evolve.  2012 could be the nail in the coffin if the Republicans try and trot out another bible thumping fundamentalist.  (If I were looking for a job as an operative I would not talk like this.)

I sincerely hope that Barak Obama, our first celebrity president since JFK, succeeds.  But "success" needs to be defined:  Obama is not going to return America to 1999 - whether you think that is a good thing or a bad thing is not the issue - as that seems to be the measure.  His team is correctly trying to lower expectations, and I think they will succeed.  I hate to be the one to break this to my fellow Republicans... it would take a miracle for Obama NOT to be a 2 term president.  Now miracles can happen.  But America, and even Republicans, does not want the kind of miracle it would take to make Obama a one termer.

No, success for Obama will be measured in his ability to cheerlead. To bring a smile to people's faces.  To help the American people to "hang in there", and to adjust.  

Mentatt (at) yahoo (dot) com