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Monday, October 13, 2008
1000 posts on this blog
Sunday, October 12, 2008
Nice weather is here
It was too hot in Maricopa during the last few months auch. But the weather has improved (colder) the last few days.
The nice time of year is here.
The first time in 4 months we don't have to turn on the airconditioning unit. $$$avingsQuote of the day
The 9 scariest words of the english language:
“I’m from the Government and I’m Here to Help.”
Ronald Reagan
He just doesn't seem to get it, does he?
When credit markets FREEZE, it means something ... the market is trying to tell you something. I will try to translate the message for the people in Washington because they are the only people in the world that don't seem to get it:
"It tells us that people shouldn't be borrowing any more money."
Does that make sense?
Well, if the US government wants to "interfere" in the marketplace AGAIN by "opening up" the credit markets, the consequences will be HORRENDOUS / PANDEMONIA!
First the 700 billion, then the rate cut, is there anything left to destroy the markets any more? Yes, opening up the credit markets.
This government can't do anything right.
I am now 100% certain that this government is not dumb at all, this administration is destroying this country deliberately . They must have some hidden agenda because no government can be that ignorant! Who advices these people?
"the tools necessary": I think he is referring to a printing press...
Wouter Bos, Finance minister of the Netherlands, talking (in Dutch) about the US government:
Translation: "The people of the US government were hardly there at the meeting and when they were there, they didn't want to take any initiative. I came across too many Americans here, that don't seem to get the importance of this situation. They think it is related to mismanagement at a company instead of trying to consider some rules about how to control markets and an industry. The worst possible time for an "inactive" Us government is now. You would hope that everybody would learn from their mistakes and that the Americans would try to do better next time. But that is not happening at the moment".
When I wrote this article, and I listed number 2, I was just trying to be funny... I wasn't serious
Article
But now, the newly communist John McSame wants to use $300 billion to "put a floor under home prices", buying mortgages at the face value and letting gamblers (and their lender) enjoy the new lower market price. Obviously not understanding what contracts are, what the free market is, or that high home prices were and are the problem, not the solution.
Before you know it we have to wear our underwear on the outside and we have to speak Swedish...
Saturday, October 11, 2008
The G7 frightens me
Berlusconi (Italy) wanted to CLOSE the stock markets worldwide!
That would mean a total collapse of the financial system, NO liquidity and DOW 4000 when the market would reopen. It would mean instant depression, 40% jobless rates, gold $2000 overnight, long term interest rates in double digits, total system meltdown, martial law, riots, ...
Those politicians have NO idea how markets work, they have done EVERYTHING wrong. It's a disgrace.
Me thinks they are going to bring interest rates to 0% on a global scale... for starters.
Don't read when you want to sleep at night.
Friday, October 10, 2008
The only asset that was not down for the week was ... (drumroll)
Russian stocks... because they didn't open the markets this week.
It's going to be a long weekend
And Monday Oct 13th is the 21st anniversary of 1987, and we all know what happened then.
Now, the REAL housingcrash will begin
The Great(er) Depression with a twist (2/3)
Referring back to my 3 questions / concerns:
1. If we are in hyperinflationary times, why is gold still below $1000? It should be trading near $3000 - $4000 an ounce.
Because GOLD at this time is considered money and not a commodity that is the only REAL protection against inflation. So gold will perform OK (not outperform) in a deflationary period because people will hoard cash and save as much as they can. Because gold is "real money" it will perform OK. HOWEVER if people all around the world start to see that there is only 1 product that can protect them from (hyper) inflation (created by the government, see part 3), gold will outperform all other assets, this has been the case throughout history. I suspect it won't be different this time.
2. If there is so much US dollar currency creation, why does the dollar rally against every other currency except the Japanese Yen? The dollar should be a lot lower.
Because so many dollars just vanished out of the system. Every asset in the world is DOWN: crash in stocks, bonds, commodities, mortages/foreclosures, bank defaults, all of that money in US dollars is now gone. Less dollars in the system means that the dollars in the system are worth more, hence the currency will go up. Because the biggest write downs are happening in the US and in US denominated currency, the dollar will rise against other currencies. The dollar rally makes perfect sense. It is not a sign of a strong US economy but it is a sign of the terrible state of the US economy.
The Japanese currency is a different story. For years, institutions have borrowed money in Japanese Yen and paid a low interest (0.5%) and invested that money in higher yielding assets all around the world. If you borrow money at 0.5% and invest it at 4% Us Treasuries, you gain 3.5%. Because of the liquidations and the low yield on those treasuries, big institutions are selling their "safe" US investments and have to buy yen. So the Yen rises.(carry trade)
There is no inflation, but we have DEFLATION! And just take a look at Japan to see how that deflationay economy will affect us all.
If you would read to forums on yahoo or a Belgian investment sites, people seem to think that the collapse of a few banks have caused this 2500 point DOW decline. I think they are wrong. If a bank collapses, Microsoft shouldn't be down 20% in a week. Nope, the markets fear something more severe. They fear a prolonged period of deflation which would create an economical disaster for all of us.
If we go back in history, we see that the first great deflation, aka the Great Depression lasted about 10 years. WW2 got the US out of it. In Japan, deflation caused the economy to collapse and 18 years later they still haven't recovered.
I think it is important to make sure that people understand WHY the markets are acting so terrible. This is not a buyable dip, this is the end of a complete asset class.
Of course the US government will not let this deflationary period last. I will talk about the possible coming political actions of the Us and other governments in part 3.
No market goes down without a rally
This continued sell-off will not last until the market goes back to 0.
Even the worst markets go up over a short amount of time. Even in the Weimar republic, inflation eased when the printing presses were jammed :-)
Weimar Republic (aka Germany):
Germany lost WWI but in contrary to WWII, the USA decided not built up Europe from the ashes. A Treaty in Versailles was signed where the "winners" declared that the losers had to pay for the devastation and some. Germany was broke and the only way to pay someone or some country was by printing money from the printing presses. They had 33 of those lovely printing presses. It was not backed up by anything, the "newly printed" money made the "old" money worthless.(more supply of money makes the money worth less) People in the Weimar were paid TWICE a day and then got half an hour to do some shopping or buying whatever they could afford. The next paycheck, would go up in "numbers" but it didn't buy as much as before...
1923: This is one of the most famous pictures from that period: a woman feeding her fireplace with German marks
Apparently in May 1920 the printing press got jammed:
German mark prices of Silver and Gold from January 1919 to November 1923 in the Weimar Republic:
Jan. 1919 Silver 12 Gold 170
Jan. 1920 Silver 84 Gold 1,340
May 1920 Silver 60 Gold 966
Jan. 1922 Silver 249 Gold 3,976
Jan. 1923 Silver 23,277 Gold 372,447
Aug. 7, 1923 Silver 4,273,874 Gold 68,382,000
Sept. 4, 1923 Silver 16,839,937 Gold 269,429,000
Oct. 23, 1923 Silver 7,253,460,000 Gold 1,160,552,662,000
Nov. 13, 1923 Silver 108,750,000,000 Gold 17,400,000,000,000
Nov. 30, 1923 Silver 543,750,000,000 Gold 87,000,000,000,000
At some time in the not too distant future, probably next week, stockmarkets will rally. DOW 7500 - 8000 should provide some decent support, just like 10 000 ...
If we drop below 7500, there is NO support until we reach 4000. That is a scary thought. you don't want to envision what would happen if that would be the case.
This is a chart of the DOW 1960 - 2008, numbers on the vertical axes start with 1000 and go up with 500. It's a logarithmic scale.
1000 on the DOW is solid support...
I wonder if they CAN RE-VOTE a bill that already has passed the House and the Senate?I think they will need to build some extra jails and some
"It means doing what I proposed more than two years ago and cracking down on predatory lenders by treating mortgage fraud like the crime that it is." -
Barack Obama, October 9, 2008
The Great(er) Depression with a twist
We went on a trip the last few days and I used that time to read some books and did some thinking about the markets.
I always had this mindset: when the US government injects money (liquidity) into the system, 700 billion here, 85 billion there, 300 billion there, that the amount of money in the system would go up. If the money supply (money in the system) goes up this causes inflation (higher prices) for all the things we buy. In other words, everything becomes more expensive. We are then in a 1970's pattern, where we get hyperinflation.
HOWEVER, there were a few things that bothered me:
1. If we are in hyperinflationary times, why is gold still below $1000? It should be trading near $3000 - $4000 an ounce.
2. If there is so much US dollar currency creation, why does the dollar rally against every other currency except the Japanese Yen? The dollar should be a lot lower.
3. How can there be any kind of inflation if commodities (basic necessities like corn, steel, wheat, oil, silver,...) have crashed at least 60 % during the last 3 months?
So when I was walking in between the Red Rock Mountains of Sedona it all made sense to me. I will try to look for a reason why the smart money is selling NOW, as if there is no tomorrow.
We are not in hyperinflation, we are in deflationary times. Just like the 1930's.
In deflation, everything gets cheaper and will become more cheaper in the future.
What causes deflation?
When the money supply (money available in the system) contracts(goes down), there is less money around to buy goods and services. Which means that prices for ALL goods, services and assets will go down.
So apparently, the trillions of dollars that have been lost by ordinary people, by banks and governments OFFSETS the money that is injected in the system. More money is going OUT OF the system than the money that is injected by the Federal Reserve. For every person that defaults on their mortgage (foreclosure) a certain amount of money vanishes, it exits the system. When AmericanMoronJohnDoe buys a $500 000 home and he forecloses on it and the bank sells it for $200 000, $300 000 dollar just vanished out of the system. And this is happening on a VERY WIDE scale here in the USA.
This is just a repeat of what happened in the 1930's where we had the stock market implode. A lot of people borrowed money to invest in stocks, when stocks came down, everybody defaulted on their debt obligations. No one could pay back the money they borrowed. The money supply went DOWN.
Same thing is happening now, only this time around stocks are not the problem but the housing market.
So, why is deflation bad, everything becomes cheaper right, I thought that was a good thing?
Yes and NO.
While everything comes down, so will your income...Nominal income declined 53 % during the Great Depression.
Example: assume you earn $100, your mortgage is $40, you spend about $50 on gas, Mc Donalds, netflix, and so on. You have $10 left to save.
In a deflation, 3 years later you would have $47, mortgage $40 and only $7 dollars left which you would spend on food... not on a new plasma screen or new Hummer...
As you might see, DEBT, is the enemy during deflation, because it is the only thing that doesn't go down, it is a fixed amount. Everything becomes cheaper, but your mortgage stays the same.
What helps you in a deflation is CASH (currency) or REAL money (gold, silver). The amounts of goods and services you can buy with them (purchasing power) will go up when time progresses.
As the inflated asset (stocks) came down 90% in 3 years during the Great Depression, it is my belief that homes will come down another 50% during the next few years.
So far everything looks similar to the Great Depression...
I will try to explain why this Great Depression has a little a twist.(new article tomorrow)
Thursday, October 9, 2008
I hope Bush and his Republicans of small government are happy now?
Intervening in the markets doesn't surprise me from the Democrats but I hope this will teach the Republicans who "represent" small government, a lesson.
Everybody knows that you don't interfere in the market unpunished!
Morons!
I am offering a FREE Economics 101 class here in Maricopa for each YES-voting senator.
Wednesday, October 8, 2008
Rollover
We saw the movie Rollover, it is a must SEE.
This movie was made 27 years ago, but it looks like 2008.
Best economical movie EVER!
It is a story about a worldwide currency crisis caused by the Arabs (who else lol), all fiat money (paper currency) defaults and becomes worthless because banks and governments default. In a matter of hours, everything what people worked for is gone when the system collapses.
It's frightening, but this is the closest we have ever been to a TOTAL WORLDWIDE SYSTEM meltdown.
In the trading room:
Sir, Gold just went to $2000.
That'll be cheap by tonight!
Our tax dollars at work
Less than a week after the federal government committed $85 billion to bail out AIG, executives of the giant AIG insurance company headed for a week-long retreat at a luxury resort and spa, the St. Regis Resort in Monarch Beach, California, Congressional investigators revealed today.Rooms at this resort can cost over $1,000 a night," Congressman Henry Waxman (D-CA) said this morning as his committee continued its investigation of Wall Street and its CEOs.
AIG documents obtained by Waxman's investigators show the company paid more than $440,000 for the retreat, including nearly $200,000 for rooms, $150,000 for meals and $23,000 in spa charges.
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