Banks are soooooo 2008

The insurance industry is approaching insolvency, too.  Any big natural disaster in a major city would finish it off.

Just take a look at the share prices for Hartford, Prudential, Metlife, etc...

This really bears watching.

Mentatt (at) yahoo (d0t) com

Pension Issue Gaining

The media has finally begun to pick up on the next big disaster - The U.S. Pension System.

The bailout for the pension system will easily top $1 Trillion.

The misleading numbers posted by retirement fund administrators help mask this reality: Public pensions in the U.S. had total liabilities of $2.9 trillion as of Dec. 16, according to the Center for Retirement Research at Boston College. Their total assets are about 30 percent less than that, at $2 trillion.

With stock market losses this year, public pensions in the U.S. are now underfunded by more than $1 trillion.

That lack of funds explains why dozens of retirement plans in the U.S. have issued more than $50 billion in pension obligation bonds during the past 25 years -- more than half of them since 1997 -- public records show.

The quick fix for pension funds becomes a future albatross for taxpayers.

Got that?  And to cover cash flow issues these pension funds have been issuing "Pension Obligation Bonds".  Nice name. Catchy.  Problem is, it is the taxpayers that are going to get caught in this one, too.

By law, states must guarantee public pension fund debts.

Read "TAXPAYERS must guarantee public pension fund debts".  My bet is that at some point, taxpayers without pensions or mortgage problems are going to react badly to these bailouts.

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I took off most of my precious metal's positions over the last 2 weeks or so.  It was a great run, but trees don't grow to the moon.  I will own Gold again when it gets a little cheaper, same with Silver.   The Mad Scientist showed me his short gold/long oil rational and I bought into it.  Ratios exist without cash being a necessary intermediary.  Gold/Silver, Gold/Oil, Oil/Corn, Dow/Gold, etc... are all worth paying attention to.  Someday the inflationary spiral WILL begin, but we are still in the grips of deflation.  Markets can reach tipping points so quickly that they strip the bark right off of you over a weekend.  The 3$ Trillion 2 year deficit hasn't happened YET - but markets do tend to anticipate.  That's why this is so difficult.

Productive farmland is very rentable.  The roof doesn't leak (there is no roof) and the tenant never calls in the middle of the night because the heat is out (there is no heat, either). Besides not needing a lot of maintenance, productive properties are easily traded, and you can have a management service handle renting, rent collection, etc... at today's prices the rent return is very competitive with 10 year Treasuries, and at the end of 10 years my bet is the land will be worth more than you paid for it, particularly if inflation rears its ugly head.

A little homework, some common sense, and you too could be a member of the Landed Gentry.

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A bear market rally could be on tap. Markets just don't go the same way, every day, day after day.  I would use it as an opportunity to get out of equities.  These rallies are really just short covering, and they can feel great... but don't let it fool you.  Trade it if you want, just don't be a believer.  If said rally does materialize, look for a 10 - 30% move, and get as much as you dare!

Just don't forget to sell.

Good Luck!

Mentatt (at) yahoo (d0t) com 

My Kind Of Sell Off

Happy Square Root Day!!!  (We only get 7 per century, 3 in the first decade of the century.)

Bottom's are put in when investors give up hope, and not before.

Oil is not a short term issue (90 days).  We have all we need at the moment.

With the exception of the 10 biggest banks, the banking industry is not so bad (considering that the 10 biggest banks are roughly half of the banking system this is clearly a "glass half full" kind of statement).

My bet is is that we are pretty darn close to a bottom in the U.S. equity market.  I have posted before that I place an 80% probability of the Dow holding 6,000 (or better) and the S & P holding 650 (and a 90% probability that .  That meant that when the Dow was 7800 and S & P was 835 I was very bearish.  My bearishness is molting quickly.  Still, I can't bring myself to fight a trend.  Further, just because a bear market rally materializes does not mean that the economy is on the path to recovery, or that a new bull market is under way.  It is still time to survive, so if you take a position and you are wrong, you gotta be gone (unless you are swinging for the fence).

If it continues, the market's momentum to the downside must be taken into consideration. 

Also, unforeseen events and influences... The Obama administration's policies, already despised by the markets, could get worse. California's descent could accelerate.  An earthquake or Category 5 hurricane could literally bankrupt the U.S. insurance system overnight.  And the political fallout from a default of the U.S. pension system might be significantly worse than anticipated.

In other words, I won't fight the trend - though I expect the trend to change abruptly at some point.  Just because I said a Dow 6,000 would likely hold, does not mean I would buy it (or not buy it) if the market momentum was still straight down.  I don't stand on ceremony.  Capitulation is in the eye of the beholder.

The U.S. and the world's financial systems are at an inflection point.  The available data is often late and incomplete, not to mention conflicting.  Case in point:

The U.S. Department of Energy says that gasoline demand was only down .1% year over year for December and January.  Really??  The Department of Transportation says total Vehicles Miles Traveled decrease over 3% in the same year over year period.  These are mutually exclusive data points (unless average miles per gallon declined VERY dramatically for the covered period).  

The market's trajectory, that is its rate of decline, can have unforeseen consequences.  REAL crashes come from oversold conditions (when the market has already "crashed"), not overbought conditions.  Was this THE crash? Still, big scores are made by taking positions when everyone else was in full scale panic.

Trading for a living has never been so difficult.

In the final analysis, I view everything through the prism of future Oil constraints.  The valuation in the energy complex appear to me to have been stretched to the extreme.  

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Can any rational, independent person see any difference between the Obama and Bush Administrations?  Yes, Obama can string a sentence together in a coherent fashion... you got me on that one.... Anything else?  A couple of bones thrown to his constituency has left Obama with egg on his face with the markets...  you got me on that one, too... hmmm... anything else?  Nope.  Same policy on the banks...  Same policy in the military budget...  Increased troops here, decreased troops there... Making promises the Government cannot keep... Spending money we don't have... Rewarding supporters at the expense of tax payers...

Seems like the same stuff to me.  

This is no criticism of either Administration's efforts to stop the financial system from collapsing overnight.  That had to happen, or within a few days the National Guard would have been called in to distribute food and maintain order.  Given the options... 

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In the past I sort of favored Robert Rapier's "Peak Oil Light".  Now, I am coming to the opinion that the credit and financial crisis might have brought on the real thing, while at the same time elongating the plateau.  This does not help the U.S. much.  World exports will be a declining pie being shared among a growing family of importers.  Maybe that effects prices now, or maybe not.  The question is just how does it effect prices in 2012.

Think that is far off in the future?  My high school sophomore son will be a freshman in college.

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Quote of the day:

"Its one thing to invest in America's recovery.  Its another thing altogether to make a down payment on the American welfare state."  Larry Lindsay on CNBC

I have been pounding away at this for some time:

The American entitlement system is on the ropes, and and has been bludgeoned into dementia.

Anybody that thinks that Secretary Clinton was doing anything other than begging in her meeting with the Chinese is in loopey.  American and China are like 2 mating sharks swimming together.  If they stop swimming, they drown. If only one drowns, it is the end of their offspring.   The U.S. and China are on a "perpetual motion machine" ride that will go the way of all perpetual motion machine schematics.  

Good Luck !

Mentatt (at) yahoo (d0t) com

Past Tense

The time to have been worried about financial assets and deflation was 1 year ago.  I am sticking with my Dow 6000 bottom (unless the oil import numbers decelerate further), 650 on the S&P.

Actually, I should say that I give the probability of Dow 6000 holding a 80% probability, and a Dow 5200 a 90% probability.  

This is much like 3 card monty or "the shell game".  You gotta keep you eyes on what is coming, not what has been.

The U.S., and the rest of the world really, is between a "Rock and a Hard Place", and Obama has chosen the "Rock" (I have no idea which would have been better).

The U.S. budget will total $3.6 TRILLION, with a deficit of $1.75 TRILLION in 2009, and $1.2 TRILLION in 2010 (anybody want to bet those projected deficits will prove optimistic?), with the 2009 deficit a staggering 12.6% of GDP.  Ok so far?  

Where does the administration, Wall Street, the Media, WHOEVER propose to GET the nearly $3 TRILLION in financing we are going to need over the next 2 years?  The entire f***ing world has less than $7.4 TRILLION in reserves, and that was last year's data.  Since that time world trade has contracted briskly, and other governments have had need of their reserves to finance their OWN deficit and stimulus spending, (China alone has budgeted over $500 BILLION), so that number is surely less than $6 Trillion as i write this.

Did I mention that the U.S. will not see a budget deficit of less than $1 TRILLION at any point in the next decade or 2 (or 3)?  Or that just to get to the $1.2 TRILLION deficit in 2010, the Obama budget claims the U.S. will grow by 3.2 % in 2010, 4% in 2011, and 4.6 % in 2012?  If not, then what?  What's "Plan B"?  Look, I don't make this stuff up.  I am a career analyst and when somebody tells me a + b + c = d, I check their math.  If it does not add up, it does not add up.  

For the guys working the lights, there is only ONE lever left to pull.  They cannot borrow from Martians.  They will have to monetize some (or all ) of the national debt.  This is an absolute CERTAINTY.  The only debate is WHEN, and that WHEN just ain't that far off in the distance.

If you have been a diligent worker and saver, now is the time to take that dream vacation, climb Kilimanjaro, vist the Taj Mahal, dive into the jaws of a harem... whatever.  With whatever is left over, buy productive farmland, precious metals, livestock, timber, fishing boats, a Mine, 

 Ag futures... (you are on your own as far as timing).

This scenario will end our deflationary experience, although I can't say exactly when.  My sense is that the turn will be swift and stunning - a "shock and awe" kind of thing.  Kind of like the equity market over the past 6 months.

Good Luck!

Mentatt (at) yahoo (d0t) com

I Knew Bill Clinton, Bill Clinton was a friend of Mine...

Barak Obama is no Bill Clinton.

Obama might be the consummate orator.  Bill Clinton was the consummate politician (like him or not).  Obama's first month showed just how "green" (as in inexperienced) he is.  Clinton knew which way the political winds were blowing and how to triangulate his own party AND the opposition to his benefit.  Obama has been run over by Speaker Botox and Majority Leader Limp (fill in the blank), and his tacking between the sandwich board with the tag line "The End is NEAR" and last night's rah-rah shows clearly the liability of electing a "community organizer" with 4 years of Senate experience to the White House.

Obama's campaign was brilliant.  So far his governing is lacking in that department.  I sincerely hope he finds his way - and soon.

Mentatt (at) yahoo (d0t) com

Spartacus Revolts

The revolt of the American Debt Slave ("ADS") is well underway.  Spartacus would have been proud.

No matter what Obama says in his speeches, no matter what Bernake and Geitner do in the form of Monetary policy, no matter what Congress does in the form of Fiscal policy... the ADS army has crossed the Rubicon.   

When Obama spoke last night about getting "lending going again", I despaired.  I realized that the president does "get it", that credit, or lending, is the vehicle by which U.S. financial system creates money and increases (or decreases) money supply.  But the ADS army has been maxed out, and with the decline (collapse) in asset prices will actually become net savers.  Savings is under-consumption, all the "stimulus" in the world is not going to change this in the short term, and in the long term will only serve to destroy the value of the very savings the ADS is now diligently (with great sacrifice) doing.

Obama, orator though he is, cannot put the shaving cream back in the can.

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The lack of hard, empirical analysis of exactly WHERE the U.S. healthcare dollar is being spent prevents us from actually doing something of value, I suspect because NO ONE in government wants to limit expensive tests, care,  and procedures.  Who wants to play G-d during the election cycle.  

Healthcare is a capital intensive/labor intensive proposition.  We do NOT have a HEALTHCARE crisis, any more than we have a HOUSING crisis.  We have a healthcare FINANCE crisis, and a housing FINANCE crisis.  The U.S. has far too many houses relative to its ability to PAY for them all - and we have far too much healthcare relative to our ability to PAY for it all.  What does the LEFT propose to do?  Point a GUN at my head (and the heads of our most productive, tax paying citizens) and threaten to shoot if I do not become more productive so that the money will be available for "universal" healthcare?

The average American voter is, what?  50 lbs. overweight?  75 lbs?  This very same individual is not going to vote himself/herself "free" healthcare?  We lack the discipline to see to our OWN health.  Medicare was supposed to be a forced savings method for dealing with the healthcare expenses of old age.  How'd that turn out?

There is no question that our current system is an embarrassment.  There is also no question that given our recent experience banking and socialism that there is no chance that healthcare is going to receive a free market effort in the short term.  We are on that road to socialism.  But be careful what you ask for, because you may just get it.

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Total Petroleum Net Imports into the U.S. has declined by 2.3% in 2009 from 2008.  2008 saw a decline of nearly 8% since 2007.  (First summation on table 1)

If this trend continues, there will never be a recovery.  In fact, this would hasten the collapse of Medicare and Social Security from the distant future to the near future.

All of the speeches in the world matter not.  Check that link every week.  That import number is THE data point.  It will tell you everything.

Good Luck!

Mentatt (at) yahoo (dot) com

What the Data Says

I got some email from what I can only presume to be folks of the "doomer" persuasion finding fault with my belief that an S&P 650 and Dow 6000 will be close to the bottom for THIS round (when Oil imports become problematic, and they will, that might change things somewhat).  

Here is some data from Marketwatch.com:

The Conference Board's index of leading economic indicators has risen for two months in a row.
Producer prices have increased for two straight months.

Consumer prices rose in January -- the first monthly gain in six months.

The Baltic Dry Index, which measures the cost of shipping key raw materials like copper, steel and iron, has more than doubled from its recent lows.

Existing-home sales rose in December, and participants in our weekly survey think that another rise took place in January.

Pending home sales went up in December.

Builders' confidence inched up this month.

Thanks to lower interest rates, applications for both new mortgages and refinancings of existing mortgages are rising.

Real hourly earnings rose 4.5% in December following a 3.3% increase in November.

An index of consumer expectations rose in January.

Retail sales shot up by 1% in January -- the first monthly rise since June.

The decline in consumer credit moderated in the latest month.

New orders for consumer and nonmilitary capital goods went up in January.

The ISM index of manufacturing went up last month.

The ISM index of services rose last month for the second month in a row.

The money supply is soaring, a sign that there's plenty of liquidity in the economy.

The 3-month London interbank offered rate, a measure of banks' willingness to lend to each other, has dropped to 1.2% from close to 5% a number of weeks ago.

Other measures of the state of the financial markets, like the TED spread and the 2-year swap spread are down, as well.

Prices of credit default swaps for banks have fallen from their peaks.

The corporate-bond markets are thawing out, too; some $127 billion in dollar-denominated debt was issued in January, the most for any month since last May.

Some securities on banks' books are starting to recover in value.

I find that, when trading, ignoring the data can be hazardous to my health.  Now, if the data changes, I will change my mind as well.  And my money will be on certain energy and commodity plays - i wouldn't touch stuff like lodging, REIT's, luxury goods, financials, etc... with 10 foot pole with work gloves on.

In fact, to my readers of the doomer persuasion, there is PLENTY of doom and gloom to go around.  While equities may be close to a short term bottom, commercial real estate has not priced in its swan dive, and residential properties have further to go.  

And my PERSONAL favorite, the big social programs, the entitlements, are going to blow up MUCH sooner than the Congressional Budget Office tried to lead us, through our brain dead media, to believe.  

A new government report on medical costs paints a stark picture for President Barack Obama, who is expected to call for a health care overhaul in a speech Tuesday night to a joint session of Congress.

Even before lawmakers start debating how care is delivered to the American people, the report shows the economy is making the job of reform harder.

Health care costs will top $8,000 per person this year, consuming an ever-bigger slice of a shrinking economic pie, says the report by the Department of Health and Human Services, due out Tuesday.

As the recession cuts into tax receipts, Medicare's giant hospital trust fund is running out of cash more rapidly, and could become insolvent as early as 2016, the report said. That's three years sooner than previously forecast.

At the same time, the government's already large share of the nation's health care bill will keep growing.

Programs such as Medicaid are expanding to take up some of the slack as more people lose job-based coverage. And baby boomers will soon start reaching 65 and signing up for Medicare. Those trends together mean that taxpayers will be responsible for more than half of the nation's health care bill by 2016 -- just seven years from now.

"The outlook for health spending during these difficult economic times is laden with formidable challenges," said the report by statisticians at HHS. It appears in the journal Health Affairs.

The health care cost forecast did not take into account recent legislation that expanded medical coverage for children of low income working parents, and added to the government's obligations.

The report "accelerates the day of reckoning," said economist John Palmer of the Maxwell School at Syracuse University.

"It is bringing home more immediately the problematic dimensions of what we face," added Palmer, who has served as a trustee overseeing Social Security and Medicare finances. "The picture was bad enough ten years from now, but the fact that everything is accelerating gives greater impetus to be concerned about health reform."

The report found health care costs will average $8,160 this year for every man, woman and child, an increase of $356 per person from last year.

Meanwhile, the number of uninsured has risen to about 48 million, according to a new estimate by the Kaiser Family Foundation.

The government statisticians estimated that health costs will reach $13,100 per person in 2018, accounting for $1 out of every $5 spent in the economy.

In 1909 the U.S. did not have a healthcare crisis.  The reason?  People with chronic, age related disease died.  

"The dead cost nothing".

This is not a problem to "solved".  This is a "condition" of life that life WILL force us to accept.  The pitch form the Left is that all we need to do is get rid of the insurance companies and nationalize healthcare... the pitch from the Right is the "Free Market".  Both groups are pathological liars, spinning and spinning their way to disaster.

The crash of these programs is well underway, and the outcome is immutable.  That won't prevent politicians and lawyers and lobbyists and "true believer" political groupees from extending the debate for their own purposes.

Good Luck!

Mentatt (at) yahoo (d0t) com