US$ Rally NOT Materializing, Sec of Ed see's it my way

The US$, which has taken it in the shorts of late, has not been able to get out of its own lame and obese way.

I really expect the US$ to rally over the next couple of quarters to years.... BUT! It had better get going - or else.

Or else what?

"Or else"... instead of the deflationary forces we have been feeling we will have those same forces within the credit markets with a nice dollup of hyper price inflation on the import side.

I think that this is what the equity market thinks most likely... hence the rally with as reported numbers yielding a 200x multiple and operating earnings of 20x. That ain't no bargain - unless the US$ is going to continue its decline.

My money says the US$ does indeed find its footing - and the U.S. Equity Markets loses its footing.

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The U.S. Secretary of Education seems to be singing my tune.

He's just viewing things in the mirror of the way I see it.

You heard it here first: Half of the private colleges in the U.S. WILL NOT BE HERE in 2020 (unless they morph into something VERY different from the part time model of learning and training they have espoused over the past 30 years).

Given what's coming, anybody that pays $200k for an undergrad degree - and I don't care if G-D is running the place - is a sucker (0r very, very rich... for whom it just does not matter).

We Interupt this vacation to bring you the Energy Crisis...

Whoops!

Perhaps my declaration that the American Energy Crisis had been put on hold for a couple of years was premature...

The U.S. Dept. of Energy's weekly status report shows Oil import declines continue to accelerate and, even as domestic production increased slightly, total petroleum availability continues to decline. Go ahead, click that link. This is either a one off, or the end of the beginning of the end.

This bears careful wathcing. Perhaps the Oil Import Crisis foretold by Jeffrey Brown is truly upon us. I would have said "No", that there was just to much "shut in" production capacity within OPEC. However, if that were the case, it should have been reflected in the price. To my mind, the price is telling me that there just isn't that much "shut in" available to be placed on the world markets.

Stay tuned.



I will be digging through the data over the next couple of days to try to understand what happened

Update on Bond Market

Early this year I advocated Corporate Bonds over stocks.  Maybe if measured that against the March lows you would have been better in stocks, but since January 1 Corporate bonds have been the best risk reward place to be.

I think that trade is done.

The spread between Corporates and Treasuries has tightened quite a bit lately.  I own Treasuries, and I don't own Corporates anymore.

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All eyes on the US$.  If it rallies versus the 6 major currencies, the equity market will fall.  If it declines, the equity market will continue higher.  Since 97 % of the currency market is negative on the US$ I can't see how this is not close to a bottom.

Unless it isn't.  In which case the recent equity market rally was deserved.

Student Loans and the College Credit Crash

Taking on $100k in student loans for an under grad degree is a thing of the past.  Taking out a mortgage on the family ranch to pay for little Jimmy's college education ain't happening anymore.  The scholarship endowments have been HAMMERED, and the (college) credit market will not go back to 2006 in the life time of anybody reading this.

Paying ANY amount of money for a degree in many of the humanities will prove to be something only the very rich, and very poor, will be well served in doing.

The old "frog in boiling water" applies.  Nobody notices that the water got too hot - until now.  In REAL terms there has been NO inflation (if you take housing into the mix) for nearly a decade - yet colleges and private schools feel it is their G-d given right to jack their fees about 7% per year (on average).  Anybody reading my stuff knows that 7% compounded means a DOUBLING of tuition fees every decade or so (rule of 72 or e).  Got that?

(Consumer prices are down by 2% in 2009, but my son's private school went up by 5%... WTF? 

You see, these institutions have made the same lethal error that the municipalities have made.  They made silly assumptions and and then made promises they cannot keep based on ever expanding credit availability to pay for their product (student loans for degrees in underwater basket weaving, woman's studies, and African American/Gay/Native American/Polish American/ Irish American et al... studies).  Boy, would I feel good about a degree in African American studies from Harvard with the head of the department so bloody dumb he got arrested for disorderly conduct in his own home (not).... that should lead to an important career wasting taxpayer's money some place important.

America spends BILLIONS so that young adults can have 4 leisurely years partying, ordering in pizza, and swapping STD's with their fellow students - with just a bit of studying thrown in for positive distraction.  WOW! That ought to prepare them for the real world, eh?

(Think I exaggerate?  Compare the 4 year experience of the average student at your average state school with the 4 year experience of a cadet at one of the U.S. military academies.  I think you will find the differences quite glaring (and no, I am not advocating a military career... just pointing out the obvious)).  

Sorry, but in a world of intense credit contraction and oil supply contraction the market will NOT be able to support that system under any circumstances.  Being the last grad out the door before they close those ivy covered halls for good will not be worth the price of admission under any circumstance.  Especially for an education in something that can't actually DO anything.

You don't need $100k in debt in order to study history and many of the other humanities.  Join your local library - its free.  And study - we NEED historians (clearly, the elite do not know their European history terribly well... if they did, they would not be so hot for gun control... and I am not talking about Nazi Germany... take a walk through the history of the Dark Ages and the subjugation of the peasants by the nobility and royalty, the elite of the time... the elites had weapons... the peasants had rape, murder, and robbery.)

At some point SOMEONE is going to notice that we do not need another PAID lecture on a host topics.  These lectures can be seen over and over again over the CENTURIES on youtube or whatever takes its place.  Pi is Pi, e is e, and 2 +2 will still be 4 in the year 2500. The internet is the ULTIMATE tool for distributing education - text books don't even come close... so why has it not been embraced?  MONEY.  Yea, I know I am exaggerating... but you get the point...

Our educational system is yet one more boondoggle.  

Libertariananimal (at) gmail (d0t) com

Retail Sales "Unexpectedly" Decline

"Retail Sales in U.S. unexpectedly fell as job losses Mounted"

Unexpected?  By WHO(M)?

Look, I will grant you that a powerful rally has taken place since March.  

I am willing to bet C notes to donuts that when the smoke clears, history will show that the Federal Reserve - in addition to supporting the bond market, the auto market, the banking system, and the mortgage market - bought S & P futures to support the U.S.l equity market, in an "extra" legal (illegal) effort and in direct contravention of their Charter. No wonder we had a rally with that kind of power behind the short squeeze (this is why you can't stand on ceremony.  If you are wrong, you gotta be gone.  It is insisting that you are right and the market is wrong that brings the BIG loss). No wonder the Fed has refused, so far, all efforts to audit their balance sheet.

(Not that I would not have done the EXACT same thing if I were in their shoes...)

This report is enormously supportive of the U.S. Treasury market and the US$.  The U.S. equity market?  Not so much.

Libertariananimal (at) gmail (d0t) com

Here is the entirety of the Federal Reserve Statement for August 12, 2009:

Release Date: August 12, 2009

For immediate release

Information received since the Federal Open Market Committee met in June suggests that economic activity is leveling out. Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing but are making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

The idea that the Fed is going to stop QE (quantitative easing) is a marketing ploy.  How much they monetize will be a result of Tax Revenues ("TR").  If TR continues to suck wind, QE or monetizing (whatever you want to call it) will continue.  If long rates spike, QE will continue.  This is not what I want, hope, or wish for, just what I think most likely. It is ALL ABOUT TR.

I also was surprised that the Fed's comments abandoned the Treasury market.  I really thought the Fed would have abandoned the Stock Market after its recent rise to come to the rescue of the Bond Market.  Didn't happen.  Perhaps they see something we don't, or perhaps this is part of some larger strategy.  I think they are playing with fire, because it is the money from the proceeds of bond sales that has backstopped EVERYTHING else.

Here is a slide presentation from A. Gary Shilling that I think is somewhat more detailed in its disclosure.  This is VERY much worth your time.
Everything that the Federal Reserve and the U.S. Treasury have done has simply brought DEMAND FORWARD.  "Cash for Clunkers"?  That program helps 2009 auto sales at the expense of 2010 auto sales.  Same with TARP, SCHWARP, and FART...
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97% of the currency market is negative on the US$.  That's what bottom's look like.  The U.S. equity market will sell off (if and) when a US$ rally materializes (IMHO).  This is a not very popular position - especially in the face of such a powerful rally.  Please keep in mind that this rally has had NO volume behind it, and Oil and Interest Rates have risen substantially.  It will be tough to maintain any momentum in the economy if Gasoline prices remain elevated (or heating this winter) or if Mortgage Rates do not come down.
The time to have been a Bull was Dow 6500.

• 
  

Summer Time

Posting has been a bit light, it being summer and all.  

I have been enjoying a couple week break from the farm down here in South Florida.  Although it has been HOT, some time paddling a surf board around (there have been ZERO waves) and training Brazilian Jiu-Jitsu at Deerfield ATT has put me in the proper frame of mind to make money in the markets.

Serene.

You cannot see clearly if your mind is not serene; sometimes one still doesn't see clearly (in the markets) even when loaded with serenity...

That said, we have made a substantial, leveraged bet that the U.S. equity market will decline somewhat from here sometime before December 2010.

Hope I'm right.  Being wrong really f*&#s with one's serenity.

Extinction Level Event for Private Colleges

My older son is going into his junior year in high school.  Accordingly, we have been mapping out the colleges he will be applying to.  Being the Obsessive/Compulsive that I am, I began to look at their budgets, endowments, tuition income streams, etc...  (I know... but I can't help it...)

I won't bore you with the details (but I will in a later post), so here is what I think:

Over 50% of the Private Colleges in the United States will not be functioning in 2020.

"I'd like to repeat that, because I think it sounds vaguely important!" - the late, great George Carlin

That's right.  Over 50% of the Private Colleges in the U.S. will not be hosting any alumni weekend get togethers after 2020 or so.

"Peak Credit" has hit the college education market, and in its unwinding it is going to LEVEL it.  The creation of a mountain of Student Debt has created a "college bubble", complete with jagoff - but tenured - professors, politically correct administrations drawing SILLY salaries and benefits, bulging budgets, and no hope of future revenue growth (actually, it is going to decline rather precipitously).  

It then follows that paying $200k for an also ran private college education is rather silly, when for $40k the state schools are more than sufficient.  Not that I won't send my son to a private school - that will be his decision.  He can go to a state school on a full "Dad" scholarship, and maybe a nice graduation bonus... or he can go to a private college, no bonus, and maybe just a little debt to help him understand value.

I will let you know what he decides.

In the mean time, if you have kids nearing college age, ask yourself:  It is now June 1, 2015 (or '16, '17, '18...).  Your kid just graduated.  What is he going to do for a living?  Will it pay enough to warrant being in debt or you not having money to help them buy a home (or whatever)?  All of this is a no brainer if you are rich.  But let us say you are in between... say you have a couple of million $ net worth, 2 or 3 kids to educate, a wedding or 2 to pay for... this sums up a good percentage of the folks that send their kids to the "Also Ran" private colleges (you know, the consolation prize for spending $250k on private schools K-12 and your kid didn't make the cut at Harvard-Stamford-Yale-Princeton... this is going to sum up 99% of the parents of kids at our nations "top" private high schools, but hey, at least they taught our kids things like "honor above all", i.e. stuff that CANNOT be measured.  My B*ll Sh*t Meter heads straight for the red zone whenever I am near these people.. and I know I irk them, too... nobody in that cabal likes a guy with eyes and ears and an ability for abstract thought).  Please keep in mind that I believe that unemployment will be very high in the middle of the next decade.

If you doubt this... keep in mind, the "College Bubble" was funded by loans that will NEVER be repaid and furnished by Sallie Mae, and in much the same way that Fannie Mae and Freddie Mac ABSOLUTELY, POSITIVELY were the largest contributor to the HOUSING BUBBLE.  Just as when the financing dried up for housing, the housing bubble popped... so, too will be the fate of the "College Bubble".

Not to worry, though.  These people will work extra hard to B*ll Sh*t you, manipulate you, and out right lie to you in order to keep those latte's and co-ed's coming.

But the wheels are coming off this system, and there ain't much to be done about it.

"Everything Else is just Noise"

"Its all about the Bond market.  Everything else is just noise." Dr. Saif K. Lalani, PhD (otherwise known to AEC readers as the Mad Scientist.)

The market is ALWAYS right.  I covered my shorts and got out of the way, but I gotta say that I am stunned at the power of this rally - especially during August after the best July in 20 years in the U.S. equity markets.  The crazy thing (to me, anyway) is that the Financials, Retailers, and Consumer Discretionary sectors were all up nearly 4%!  Who the ^&%# is buying that stuff?  Sorry, I forgot... the market is always right.

Perhaps the recession really is over, and the market is on its way to Dow 12,500 and S&P 1,200... and why not (Actually, I doubt it... but anything is possible)?  Markets overshoot all the time.  It is all about the U.S. Treasury market.

The U.S. Treasury has backstopped the banks, the insurance companies, Fannie Mae and Freddy Mac, GM-Ford-Chrysler, Wall Street, the Money Markets, my son's high school wrestling team, etc...  it then follows that the only thing that matters is the ability of the U.S. Treasury to continue to sell bonds (at favorable interest rates).

I am unable to go long U.S. equities even though they continue to rise (in my face).  I simply cannot see how the U.S. Treasury will be able to fund next year's deficit without some no- f&*^ing-around monetization (printing money to buy the debt), but clearly some very, very smart people disagree with me.  That's the problem with this business... you are reminded, and reminded often, what a dumb SOB you really are...

Still, I am sticking with my numbers.  The Mad Scientist so accurately pointed out some time ago that the rate of change in the employment situation would turn sharply - that the private, non-healthcare, non-educational part of the economy had already shed most of the jobs it possibly could - there are too few left to fire to move the unemployment rate up by much (because the real unemployment rate is NOT the U3 rate of 9.4% or even the U6 rate of 16.3%... it is at least several points higher having to do with the silly Birth/Death model and the way independent contractors are accounted for, not to mention other distortions).  

As much as the Dow 6500 created a great "Long" opportunity, it seems this rally will create a great "Short" opportunity for U.S. equity markets.  

I will be fleshing this out over the next couple of days, but I think that an opportunity to profit BIG is in the offing, and it will be from betting against the market.

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The US$ caught a bounce today.  Maybe it was started by the employment report... but I bet it carries through for a bit.  It better.

The 10 Year Treasury/S & P ratio is at a one year extreme.  I don't give specific trading advice, but you can figure out what I am doing from looking at those charts... 

Lastly.  I believe very, very strongly that this is a short covering rally.  This from seekingalpha.com seems to confirm my suspicions...

The 50 smallest stocks have outperformed the largest 50 stocks by 7.5%.

The 50 most shorted stocks have beaten the 50 least shorted stocks by 8.8%.

If you are approaching retirement, or need money in the near future for your child's education, or if you just don't want kill yourself for missing this opportunity, now is a good time to lighten up on equities.

Libertariananimal (at) gmail (d0t) com

  

The rate of decline of Petroleum Imports into the U.S. has accelerated to negative 8.1% for 2009 from this point in 2008.  This could be the second year in a row of 8% import declines, right about where Jeffrey Brown said.  For the first time in months, total U.S. inventories declined.

I want to remind you that the 8.1% is accurate, while the 6.1% decline in total supply is not.  Ethanol supply has increased significantly year over year, about 270k bpd.  Ethanol is NOT petroleum.

Notice that tax collections are down over 22% year over year, but GDP was only down 1% in Q2?  Believe that?  Well, sort of... if you take the government spending out of the picture, the decline was about 8%.  Since the government cannot keep that up next year, if the productive part of the economy does not grow, that 7% difference will have to be accepted at some Quarter in the future.  Of course, the Feds hope that by then the consumer will have taken back over.

NAFC.

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This is a truly sad story in the Washington Post about a working class family that has gone broke. It was emailed to me by a reader.  One who clearly does not agree with my take on personal responsibility and reliance.

Read it. Commiserate.  Empathize.  Sympathize.  Then... ANALYZE.

Flat broke - yet there is enough money for cigarettes, beer, lottery tickets, and to over eat. They went and got food from a church charity, but did not start a garden.  The "man" of the house sneaks off to the local bar and quaffs 7 beers and then DRIVES home, worried only about getting pulled over by the police - not killing somebody's kids in an accident.  He feels entitled to do this. His excuse? This release prevents him from winding up "in a bell tower with a high powered rifle".

Look, I ain't casting the first stone here (and I refuse to be the hypocrite like our friendly folks in Law Enforcement or Judiciary).  I have sinned PLENTY in my life... we all have.  If you are a lucky, you grow up without any baggage from it.  But you are SUPPOSED to grow up (I have literally seen half dozen of my childhood BEST FRIENDS buried from alcohol and drug abuse before the age of 40), the only thing worse than getting old is NOT getting old.  I don't drink, smoke, or gamble (and I don't have any "prescriptions"), and I wouldn't have it at gun point... and not because it ain't fun (like I said, I sinned enough when I was young)... Being a parent means setting examples and parameters to live by, preparing for a rainy day, and not being a f^%#^%%$! danger to other people's kids!  That means not getting arrested for drunk driving, not killing somebody else while drunk, not speeding or driving like a maniac (disclosure:  I had speeding ticket 3 years ago, my first in 25 years or so, and hopefully my last) not wasting money on cigarettes or alcohol, etc...

There is a cycle going on here, and cycles are made to be broken. 

I want to leave you with this excellent article by J.R. Nyquist.  If you have children, you might want to frame this on your fridge.  If you are one of the "depressed adults who need constant affirmation" feel free to send me an email excoriating me.

I give you Mr. J.R. Nyquist:

The Power of Negative Thinking

"The magic word is “no.” Despite what you may have heard, the power of the word “no” outstrips the power of “yes.” The word “no” has greater utility, avoids unsuspecting troubles and protects against severe injury and death. When a toddler is about to stick a fork in a light socket, the word “no” saves the child from electrocution. When that famous daredevil says he can jump the Grand Canyon on a motorcycle the appropriate reaction is, “No, you mustn’t.” The power of negative thinking is in keeping with sobriety and respectable conduct. If you want to be a drug addict, “Just say no.” If you don’t want higher taxes, vote “no” on nearly every proposition. And if you don’t want socialism then your watchword is, “No we can’t!”

I ought to write a book on the power of negative thinking. Chapter 1 should be titled “The Awful Damaging Consequences of Yes.” Ask yourself a simple question: Is a “yes”-man noble? Do you want to live without discretion or judgment? Is it right to accommodate everyone? Our permissive society is all about “yes,” so that yes has become sinister. Opening the flood-gates of yes has deformed our society. In the delicate balance of yes and no, we have tipped too far in the direction of yes and are becoming a nation of neurotics and weirdoes. Man is limited and fragile. He is not all-knowing or all-powerful. In fact, we all need to be reminded of our limitations. Think of the damage caused when we say “yes” to our appetites, our whims, our momentary urges. If you are 500 pounds, you’ve been saying “yes” when you should be saying “no.” If your credit cards are maxed, it is because you live in a world of “yes” when your world should be about “no.”

Chapter 2 should be titled, “Shut Up and Sit Still.” Every fool has an opinion without knowledge, an impulse without a plan, a readiness to plunge headlong into God-knows-what. The first lesson of discipline is to be quiet and think; to show self-restraint. Impulsiveness is the essence of the self-destructive life based on “yes.” Follow every impulse and you won’t get far. Stop yourself and you just might save yourself. And who on earth can possibly stop you? The fact is: You’re the only one who has the power of self-stopping. So shut up and sit still.

Chapter 3 should be titled “The Virtue of Guilt.” If you haven’t done anything bad in recent weeks or months, consider what you presently have in mind. You are wicked by nature, so you are guilty by nature. Therefore, it is appropriate to feel guilty. Don’t let yourself off the hook. Don’t be slipshod and weak. Suck in your gut and make a new start. Guilt is the stick across your back sent to make you better. Is guilt unpleasant? It’s supposed to be, and it better be. Feel guilty often, and have plenty of regrets. People who have no regrets are dangerous. They will suck you in and suck you down.

Chapter 4 should be titled “You’re Not So Special.” For two generations we’ve been telling children that they are special. Now we have an emerging generation of depressed adults who need constant affirmation. The demanding, impertinent and entitled individual is a weak and emotionally unstable neurotic who clings to false optimism because truth and reality are too frightening and difficult. One ought to ask: What makes all these “special” people so special? There’s nothing special about a narcissistic crybaby, and nobody likes self-pity, blubbering or whining.

Chapter 5 should be titled “How Fear and Worry Can Save You.” That’s right. Fear is good, because there are bad people and scary countries with leaders who want to anthrax you. Fear is basic to survival. Those who fear nothing are not long for this world. As for worrying, the worrier displays a caring attitude. If you really care, then you cannot help worrying. It is those who do not care about anything that never worry. For they have nothing to worry about, being detached and emotionally separated from the concerns of the whole human race. If someone tells you to stop worrying and live in the present, remind him that living in the present is for children and animals. It is not for adults.

Chapter 6 should be titled “Why Suffering is Good.” The answer is simple: Comfort is enervating while suffering hardens and strengthens. As a famous fitness guru once said, “No pain, no gain.” Those who are always feeling good never learn or grow. The best education comes in the wake of failure. If a man lives entirely without failure he cannot be called “fortunate”; for he has not learned life’s real lesson, which is loss. The more we live, the more we lose. As time advances we lose our youth, our health and eventually our lives. The cult of “winning” and “avoidance of suffering” is unnatural and guarantees a maladjusted attitude.

Chapter 7 should be “Realize What an Idiot You Really Are.” The ancient dictum “Know thyself” is the distilled essence of philosophy. And to know yourself is to know that idiocy has no bottom. It is fathomless and without limit. There is no stupidity that cannot ensnare you, no folly that cannot suck you in. As Dirty Harry famously said, “A man’s gotta know his limitations.” The more clever you seem to yourself, the more likely you are nearing some hard object about to strike you upside the head."

End of the J.R. Nyquist's The Power of Negative Thinking

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Over the next decade, energy shortages are going to leave MANY, MANY people in the position that the family from the Washington Post article are in.  It does not have to be you, and you will do yourself and society a far greater service by making arrangements NOW to avoid this outcome for you and yours.

Good Luck.

Libertariananimal (at) gmail (dot) com

Boca Raton Pizza System Collapse

It is a sad day, indeed.

I have recently returned to my South Florida home for a couple week vacation before I return to the farm to finish the harvest, canning, and slaughtering, and to my chagrin I have come to find that the Pizza System in downtown Boca Raton, Florida has collapsed.

We live "downtown", if you will.  The only 2 pizza shops downtown, Big Louie's and New York Pizza have shut their doors.  The really sad thing, we unwittingly bought the LAST PIZZA from New York Pizza, and while enjoying the cheezee, gooee, tomatoeee, bread did not really notice that the proprietors were packing the store.  When we returned nearly a week later, the door was looked, and the table we used had not even been cleared.  They literally left and put the key in the door as we left.  Now the nearest Pizza joint is over 2 miles away, and they of the thick crust variety.  Oh, the horrors!

You see, this is far more serious than it might appear.  Boca Raton is enclave of Nouveau Riche New Yorkers - and New Yorkers are Pizza fanatics.  For the Pizza System to collapse here... well, the Pizzeria's landlords must have NEEDED to play hardball, and I would expect that high couture would have a difficult time in these locations... so I guess it is off to foreclosure for these properties... and no Pizza for downtown Boca Raton.

Libertarinanimal (at) gmail (d0t) com

No Money

The government, in the very near future, will not have the money to fund ANY of its programs (without REAL, and DAMAGING, printing of fake money to buy U.S. Treasury Bonds).

"A key factor is the economy's health. The future of current programs — not to mention the new ones Obama is proposing — will depend largely on how fast the economy recovers from the recession, said William Gale, co-director of the Center. "If it's just one year, then it's a remarkable thing, but it's totally manageable. If the economy doesn't recover soon, it doesn't matter what your social, economic and political agenda is. There's not going to be any revenue to pay for it."

Any Questions?

Libertariananimal (at) gmail Dot Com

Tax Hike Out

The White House did a public smack down on Treasury Sec Geitner and Eco Advisor Summers.

I guess Obama is running for a second term... I can just hear him quoting President George Herbert Walker Bush (the elder):

"Read my lips.  No new taxes."

You might not be old enough to remember, but that line pretty much sealed Bush the elder's fate, enabling the Clinton's to rise to power.

I guess the Department of Energy is safe, too...

Ah, but it was a nice thought.

Libertariananimal (at) gmail (d0t) com

Tax Increase on the Middle Class

I can't get that out of my mind... The Obama administration is putting a middle class tax increase out into the media... no administration does anything this big by accident, and not unless their hand was forced.



The U.S. Treasury has a huge financing in the offing, and the US$ is falling almost every day, down over 10% against the big 6 since March of this year. No creditor nation in their right mind (I know, what creditor nation has BEEN in their right mind to get to this point) is going to buy U.S. Bonds paying 3.5%... especially when they keep falling in price by more than the interest rate. The U.S. MUST halt the decline in the US$, or the U.S. risks a default (I should say a technical default, becasue the Fed would HAVE to step in and monetize BIG TIME... and that would be that - no more US$ as reserve currency. Talk about inflation!)

All eyes gotta be on the US$.

Libertariananimal (at) gmail d0T com

"Mutually Exclusive Events"

Quote of the Day:

In probability theory,
events E1, E2, ..., En are said to be mutually exclusive if the occurrence of any one of them automatically implies the non-occurrence of the remaining n − 1 events. Therefore, two mutually exclusive events cannot both occur. Mutually exclusive events have the property: Pr(A ∩ B) = 0.[1]

For example, one cannot draw a card that is both red and a club because clubs are always black. If one draws just one card from the deck, either a red card or a club can be drawn. When A and B are mutually exclusive, P(A or B) = P(A) + P(B).[2]

One might ask, "What is the probability of drawing a red card or a club?" This problem would be solved by adding together the probability of drawing a red card and the probability of drawing a club. In a standard 52-card deck, there are twenty-six red cards and thirteen clubs: 26/52 + 13/52 = 39/52 or 3/4.

High Oil prices and an expanding U.S. economy are, IMHO, mutually exclusive events. High interest rates, and high equity prices are mutually exclusive events.

Something will give here. These asset classes cannot ALL have positive correlation for any length of time. I just pray that it is not the US$ that gives.

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BTW, the Deflationists appear to be losing the argument at the moment. Actually, the Deflationists are watching their heads role down the street with their blood dripping from the sword of the various Central Banks.

Not that I am ready to throw in the towel on those guys... As I said a couple weeks back, I covered my shorts, because this is a beauty contest... and it doesn't matter which girl I think is the prettiest... what matters is what the judges think, and so far they seem to think the inflation trade is working.

This is either a VERY "V" shaped recovery, or one of the greatest head fakes of all time.

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The time to have been bullish was at Dow 6,500. 9200? In the immortal words of former BEar Stearns CEO (my former boss back when Bear was a respected firm... say what you like about Bear, but this guy was the most humble genius I ever met) Alan C. "Ace" Greenberg: "If you didn't get invited to the wedding, don't go to the funeral".

There is a blow off in here somewhere... I just hope it ain't at Dow 12,000... or I will have a tough time cleaning up from all of the egg on my face.

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The US$ is oversold versus the 6 other big currencies in the Dollar Index. This MIGHT mean that precious metals are over bought I own a great deal of metal, but I have continued to sell calls against it. If it gets called away, I will let it happen, and sell puts to re-enter. I have no intention of selling the actual bullion I own. Of course, if this is the Big Bang for the US$, well... let us hope not...

I have been a Gold Bull since just under $500. I still think over the next 5 years Gold can hit $2000. But if the US$ rallies, and it is long overdue, the precious metals could come under pressure. So, if you decide to hold now, don't freak out if they come in. Of course, with the kind of monetization the U.S. is going to have to engage in, this might very well be the beginning of the end.

The Obama administration is floating balloons about raising taxes on the middle class. I believe this is to assuage the Chinese and other creditor nations that the U.S. is going to get its fiscal house in order. The U.S., WILL ABSOLUTELY, POSSITIVELY cut expenditures and raise taxes at some point. I doubt whether this Administration will "Lead" the way, doing th right thing and cut expenditures like mad FIRST, and then sell a tax increase. They will be too busy looking 2012 in the face... but, you never know.

If Obama wants to go down in history as a great president, and was willing to forgo a second term (which is actually in his best interests. There is nothing better than being a former POTUS), and if I were working as his speech writer, here is what his opening address on the issue to the American people would be:

My fellow citizens:

America is faced with an unprecedented fiscal problem, and I am going to tell
people what they don't wish to hear, and require that which people do not wish
to do. Accordingly, I will not seek second term to my Presidency. I will instead use all of the power of my office to bring the nation's fiscal issues into balance. It will be VERY painful, but we can, and will, overcome these obsticles in our path.

Withing minutes of giving this speech I would communicate the seriousness of the issue by proposing to eliminate the Departments of Energy, Commerce, Homeland Security, Education, Labor, and Housing and Urban Development. I would issue a huge recall of military troops from around the world, and I would use these troops to engage the American poor in how to become more self sufficient in providing for themselves.

And then I would really start to cut spending.

This would throw the nation into a massive Recession, which is exactly what is needed. The U.S. must make the transition to less consumption and increased savings - and tha faster we do this the better - and only a popular president with street credibility could make it happen.

But I got a better shot at a date with the tooth fairy.

The Lies and the Truth

If you have been reading my stuff for a while, you know that I have written repeatedly that the Left and Right bi-polar disorder political establishment will collapse... AND WILL BE REPLACED FASCISM OR LIBERTARIANISM

I beg you, please listen to the second speaker, Gerald Celente, about 1/3 through this program.  Listen to how describes the rip off by Government Sachs and what he calls it... what it really is... FASCISM.

Gerald Celente is a massive favorite of the doom and gloom peak oil set, and I have a great deal of respect for his analytical capacities, though he is more pessimistic than I am.  What he is saying is EXACTLY what I have been saying to the American Left for years... That the Left is an unwitting DUPE aiding and abetting the Fascists.

Please, give a listen to Celente.  

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