Of Butterflys and Bubbles

Butterfly Effect: The name of the effect, coined by Edward Lorenz, is derived from the theoretical example of a hurricane's formation being contingent on whether or not a distant butterfly had flapped its wings several weeks before.


In investing discussion circles, most people talk about bubbles.  I look for butterflys.

Example: Shinzō Abe, the current Prime Minister of Japan. in 2012 introduces "abenomics" or the massive creation of Japanese Yen to fix Japanese overall economy.  This was the butterfly flapping its wings (as opposed to flapping lips - the distinction is important).  In currency war parlance, massive quantitative easing devalues the currency of the country thus making their exports more attractive.  As exports grow, stocks in exporting companies increases due to increased earnings.  In addition, cheap Yen, with no where to go because real interest rates are negative, also goes into the stockmarket driving Japan stocks higher. A double boost!  So if you bought EWJ in December and sold it in May when Japan topped, you would have cleared a >20% return or more 6 months.

What you need to look for is a situation where there is a sensitive dependence on initial conditions, where a small change at one place in a deterministic nonlinear system can result in large differences to a later state.

Let me know if you detect a butterfly.  Help us all make some money. Don't waste your time looking for bubbles and listening to people talk about bubbles-- they can't be saved.

As invetor of the Bulldog method of investing, I now add the Butterfly theorem.  So for your listening pleasure here is a youtube video of "Dog and Butterfly".

Thelma, Louise, & Chloe's Cliff

Meet Chloe:

Single Mom- resident of US state of Pennsylvania

Chloe has two children, ages 1 and 4 who attend daycare so Chloe can work

Chloe works as a digital print operator with a gross salary of $29K/year.

Happy Story:

Hard to raise two children on only $29K.  However, tax payers help by providing health care assistance (CHIP), childcare subsidy, housing assistance, food stamps, and an earned income tax credit from the US Federal Government.  Chloe receives $28K in tax payer funded assistance.

Total Disposable Income = $57K  ($29K salary + $28K in welfare). 

Chloe’s Cliff  #1 (A $1,000 bonus costs her $9,000):

The store where Chloe works beat all its sales goals.  She is a really talented worker and shared in her store’s success by being awarded a $1,000 bonus just before Christmas.   This made for some extra nice presents under the tree.

The next year, when Chloe reapplied for tax payer funded assistance, she got the bad news-  Chloe’s benefits were going to be reduced because she made $30K ($29K salary plus $1K bonus).   Her food stamp subsidy was significantly reduced and she lost all her housing assistance. 

In total, Chloe now only could receive $19K in tax payer funded assistance.

Total Disposable Income = $48K  ($29K salary and $19K in subsidies).

Chloe’s Cliff #2: (Please don't promote me, I can't afford it):

As we said, Chloe is a good very good employee who has bettered herself by night school.  Her boss got promoted to run a regional network of print shops and Chole was tapped to take over as store manager- a big promotion and $8,500 per year raise.

But Chloe is smart and still hurting from the $9K financial hit she took last year.  She knows that at $37,500/year (Her original base of $29K/year plus $8,500 promotion), she will lose all her government assistance except the health care subsidy for her children which is about $7,500/year.

Total Disposable Income = $46K as compared to her happy story (above) where she had $57,000 a year!

Like Thelma & Louise:

The more Chloe works to better herself the lower her disposable income.  She feels a little bit like the two accidental outlaws in the movie.  But she has to protect herself and her family and therefore needs to take money from other citizens.  

And the bureaucrats that created these cliffs did so because they thought they were doing something good.  Chloe is stuck in her dead end job no matter how much she wants to better herself because the entitlement system keeps her there.  It is not about Chloe- it is the system.

Or did the bureaucrats create these cliffs to make their needy constituents reliant on them so they can hold power?  After all, the people in power are there because they understand how to exploit human nature.

Chloe’s self esteem is not important to the cliff creators.  In fact, Chloe is just an unfortunate casualty; a minority.  A vote that they won’t lose no matter how imprisoned they make her feel.

Addendum:

This posting is not anti-welfare programs.  I believe that social safety nets are important for a well ordered society.

The point is- a well tuned support system smooths the phase out of entitlements as the person’s after tax income grows.  But that would take some work by the cliff creators who will receive no personal benefit if they fix the problem.  The political incentive system is broken.

Here is the data:

The full report can be found here.

 

 

 

 

 

 

 

 

 

 

 

Modern Day Sharecroppers

Have you been watching the Student Loan bubble in the US? According to the WSJ, more than 12% are now delinquent. If you look at each borrower’s situation (financial condition and amount borrowed) a growing number of Student Loans are sub-prime. Interesting parallels between housing loans and student loans exist.


Housing: loans were made to people who couldn’t pay the mortgage who bought homes they never really could afford. The financial industry made all the money and everyone else paid. The government nationalized the mortgage reinsurance industry through Fannie Mae and Freddie Mac with the US taxpayer to foot the bill for all defaults. With the banks made whole there was no need to force foreclosures. After all, if the bank takes over the house then they have to maintain it! Why not just leave the delinquent borrowers in the house- rent/mortgage free- so they can do the up keep. Sort of like tenant farming.

Education: loans were made to prospective students who got degrees in fields with no jobs. The loans propped up the university system allowing them to raise tuition faster than inflation making institutional elites (professors, administrators, etc.) rich or get paid full time for very part time work. The government nationalized the student loan industry through the takeover of Sallie Mae leaving the defaults to be paid for by the US taxpayer. Also, student loans can’t be discharged in bankruptcy so you will be owned by the state until you pay off your debt. But you do get to keep your diploma and 15% or more garnished from your wages for at least the next 20 years. How’s that for a modern day sharecropper?



The best businesses in America are those where you can personalize your gains and socialize your losses. Or for the gamblers among you… like always playing with the House’s money.

Taxing Your Brain With A Trillion Dollar Coin

What is it?  The trillion dollar coin is a concept which emerged during the United States debt ceiling crisis in 2011, as a proposed way to bypass any necessity for the US Congress to raise the country's borrowing limit, through the minting of very high value platinum coins. The concept gained more mainstream attention by late 2012 during the debates over the United States fiscal cliff negotiations and renewed debt-ceiling discussions.  (Yes it is legal)

How does it work?  The US Government mints at coin with a face value of $1T and deposits it with the Federal Reserve.  The Fed then gives the US Government $1T to spend. 

Will it work?  YES!  The same thing happens today except the US Government creates treasury bonds which the Federal Reserve buys and in turn, gives dollars (Federal Reserve Notes) to the US Government to spend.  Reducing the task to the simple mint and deposit of a tiny coin saves a lot time and effort.  There is no difference between treasury bonds and trillion dollar coins to the Federal Reserve and that is why it will work.

Why Won't the Government Do It?   If they did this, then someone would want the government to not just mint one coin but how about 4 coins each year to cover all of our spending needs.  Then we wouldn't have to collect any taxes.  Governments rarely give up their taxing power.

Stop and really think about this for a moment. 

Now let me ask you... If a government can create its own money, why does it take money from its citizens?  If no one had to pay taxes, don't you think consumption would skyrocket?  If consumption increases would the economy expand as more and more people created more and more products and services to meet the increased spending power of the people?  If so, then taking people's money collapses the economy.

Finger on the Button; Hand on the Switch

As you may have guessed, I am in many conversations everyday about finance and economics.  The most frequent question I get is, "what should I do?".   My answer is the same-- You can start by having 3 months of your financial needs in cash.

They reply, "So what, everyone on TV and every financial adviser says you need to have 3 months of expenses as an emergency fund-- tell me something I don't know".   And then I say, "you need to have these 3 months of expenses in cash in your house or some other safe, accessible place."  "Do you?"  Almost everyone says no.

Today, I offer you food for thought by looking at google search frequency.  Don't have your head in the sand.

Source: Google Trends

In case you can't read the graph, in August of 2008, before the big crash and "Lehman Weekend", the number of people searching on the term "bank run" reached its peak. Today, the number of people searching the term "bank run" has set a new peak!

Two things you need to be aware of if you are a US resident (I am unfamiliar with the laws of other countries):

(1) The Frank/Dodd Financial Regulation bill didn't regulate as much as it gave financial institutions the authority to freeze the accounts of their customers if the board of the bank felt that the institution was threatened due to a bank run. Before this law, banks could not legally freeze money market accounts. Now they can and they don't need permission to do so- only probable cause.

(2) National defense related legislation gave the president of the US authority to shut down all or portions of the Internet in the interests of national security.

That means, all it takes is a press of a button and it doesn't matter how much money you have--- if you don't have it in your hand--- it is worthless.

Fore-warned is Fore-armed.

PeakBook goes public -- What's in a name?

Dear Readers,
I enjoyed your creativity with Mark to Market.  Most notable additions were Mark to Mother and Mark to Manure.  I just can't resist opening up a new chapter on this year's "epic fail" which is the launch of FACEBOOK managing to net 23 cents per share gain (0.6%) after the underwriters pumped nearly $2Billion in end of day trades just to keep this puppy from closing at a loss.

So here we go... tell me your favorites and add to the list!  Obviously this company was completely mis-named:

Fadebook

Fecalbook

FadBook

FailBook

FaintBook

FakeBook

FallBook

FalseBook

FarceBook

FardBook

FartBook

FearBook

FaceBad

FaceBomb

FaceBilk

FaceBale

FaceBalk

FaceBank

FaceBarf

FaceBark

FaceBarn

FaceBash

FaceBask

FaceBong

FaceBoom

FaceBust

FaceBoot

FaceBore

Mark to Market Fun

Clearly the news this week on JPMorgan and their "mark to market" problem is not fun for them.  I wrote about the fallacy of Mark to Market back on March 4, 2009 so if you need a tutorial click here.  Shortly after my posting, the US Government relaxed Mark to Market rules and the 2009 to 2012 stock market boom fueled by 0% interest rates from the Federal Reserve ("free money") took off. 

Now MTM is back in the news -- it is very inconvenient to have report the value of your holdings based on what someone else would buy them for.  That is why Financial Institutions prefer Mark to Model... They model what they would be worth under certain conditions (mostly good conditions) and then put the financial instruments on their books at that price.  This is the imaginary number system of high finance. 

I offer some additions to Mark to Market and Mark to Model (please add your thoughts in the comments):

Mark to Mood: Valuation of the security is based on the way your feel.

Mark to Macadamia:  Valuation is based on some Nut's idea of what it is worth.

Mark to Madness: See Mark to Macadamia.

Mark to Mackerel:  Better believe in this valuation or you will be "sleeping with the fishes".

Mark to Mafia: See Mark to Mackerel.

Mark to Magic:  My fingers never left my hand while I was appraising the value.

Mark to Machete: If you really knew what this was worth you would cut off my "vitals"

Mark to Maalox:  If you really knew what this was worth you would need a big dose.

Mark to Malfeasance:  Practice only allowed at too-big-to-fail institutions.

Mark to Macadam:  Used when the value is nose diving into the tarmac.

Mark to Macumba: Requires experience in voodoo economics to use properly.

Mark to Maelstrom: Valuation based on one or more perfect storms.

Mark to Marijuana / Martini: I think this one is obvious.

Mark to Marx: Valuation is determined by a central government.

Mark to Madam: Valuation based on prior year earnings of all wall street hookers.

Mark to Morpheus:  (also known as Mark to Matrix) Take red pill and the true valuation will become clearer.

Mark to Mariachi:  The valuation is higher in South of the US Border.

Mark to Mallard: Sell this security and "duck".

And lastly my personal favorite...

Mark to Mansfield: Securities mostly likely to chart a "double top" pattern.

Parody: The Lord is My Shepherd

The voice of an unemployed 20+ year old with advanced educational degrees living in a certain European country that is very popular in the news these days.

"The EU is my shepherd; I shall not work.
They keepth jobs out of the hands of the people,
Which leadeth the region to class warfare and polarization.
They encourageth sloth; They leadeth the government to new heights in deficit spending.
Yea, though I walk in the shadow of Economic collapse,
I shall fear no depression: for EuroParliament is with me.
Their handouts and monetary indiscretion supplement my income.
They maintainest spending increases in the presence of insurmountable debt;
They punisheth businesses with excessive regulations;
And giveth the hard-earned fruits of labor to the unproductive.
Surely, handouts and stimulus payments shall follow all the days of their reign;
And I will stay a slave forever."

One Man Alone Speaks For The Greek People

For my dear readers from the United States, what if the Chinese government came to the US and started ordering the US President and the US Congress to take certain actions to ensure the debt the US owed China was going to be paid in full?   What if the China demanded changes in the US Constitution to ensure that those orders were fulfilled?   And, what if China inserted their own person as US President because they didn't like the one that was elected by the American people?

Seem absurd?  This is exactly what has happened to the Greek people.  The head of Greece has been inserted by the European Parliament and the debt deals being cast are requiring many changes to the Greek constitution.

In my last post I introduced you to Nigel Farage.  The UK minister to the European Parliament.  The only person I know of that still has a voice. 

Here is Nigel again speaking on behalf of the Greek people:
http://www.youtube.com/watch?v=W8Ayb8P1LbU

Make no mistake, this is not about bailing out the Greek people or the Greek Government.  This is about bailing out the people who lent money to Greece.  Go here to get a simple, easy to understand lesson:  http://www.youtube.com/watch?v=V5z0rQRdsiE

If you don't want to blame the banks who lent the money then blame the Greek politicians who indebted their country all for the sake of giving money away to their people so they could get re-elected and stay in power.  But don't blame the Greek people.

Watch this very closely because your country is next.

A Bridge TOO Farage

Today I would like to introduce you to Nigel Farage.

But first, my apologies to the 1977 film "A Bridge Too Far" which is an account of  "This WWII film follows the perspectives of American, Polish and British soldiers attempting to capture key bridges behind German lines in a complicated parachute and armoured assault. "


Nigel, is truly a "thorn in the side" of un-elected EU Bureaucrats and to get to know him, please click on the following YOUTUBE links.  


ENJOY!!!!
Nigel Farage.... "The Game is Up!"
Nigel Farage... "You weren't elected and those of you who were we elected in secret".
Nigel Farage... "Attacks the EU President and everyone else in the EU Politburo".


Five years ago, I was having dinner in Wuppertal Germany with my colleague Hans who educated me about EU politicians, their non-elected status, their attractive salaries and benefits, and their long tenures. I listened and learned but didn't understand the implications.  With the monetary problems in the EU today, I now understand what he saw so many years ago.


Getting back to Nigel, I would like to tell you about another Nigel- colleague of Hans and myself.  Apparently, these Nigel guys have no problems creating international incidents! 


You see, Nigel and Hans teamed up against me and another American (who we will refer to as TopTiger11) for a golf match in Austria.  Think of this as an amateur's version of the Ryder Cup.


Nigel, a lefty, had a very aggressive slice.  In one tee shot, he sliced left, overshot a 20 meter high hedgerow to launch his golf ball into "field's unknown".   Thinking that we would cross through the hedges to look for Nigel's ball, Hans suggested Nigel must hit another ball.  Because, if we were to cross the hedgerow in search of Nigel's ball we would need passports.   His towering slice of more that 300 meters (actually only 100 meters forwards and 200 meters sideways) had violated the airspace and sovereign soil of Hungary. 


So such is the lot of the world's Nigel's.  Always creating international incidents.  but, always speaking openly about the world as it is.  Even if the listeners cannot handle the truth!

 Next post, we will move from "A Bridge Too Farage" to "The Great EUscape".  Long live the Euro...

The Government is Taking Your Pension

In March 2010, I wrote to you about how governments are taking people's hard earned pension plans. For most people, in most countries, you have some form of your pension privately (your own savings) and some form promised to you by your government.

This year politicians have raided the "government provided" pension plans of their people all around the world.  Here are a few real examples:

1. Ireland announced last week that it would use the country’s €24bn National Pensions Reserve Fund “to support the exchequer’s funding programme”.
2. Telegraph writes: "Portugal has raided €5.6bn (£4.8bn) of pension fund assets in a controversial scramble to meet its deficit targets."
3. The Obama administration will begin to tap federal retiree programs to help fund operations after the government lost its ability Monday to borrow more money from the public, adding urgency to efforts in Washington to fashion a compromise over the debt.

Next is your private pension plans and we already have examples:

1. Hungarian government to claw $15bn of private pension funds back to the state system.
2. Christina Kirchner, President of Argentina, in 2008 seized her citizens’ private pension funds.
3. The US government is drafting legislation for “Guaranteed Retirement Accounts” (GRAs) in which private company pensions and private accounts of citizens are absorbed into a government system whereby Washington then decides how much money you get back.  This is justified on the basis that private pensions have been tax advantaged for years and therefore are already quasi-government property.

There is an old saying that goes, "rich or poor, king or pauper, if you can't defend what you have- you have nothing".

Or you can follow this link and watch a YOUTUBE from George Carlin [WARNING: as is typical in his shows, he uses a lot of very offensive language.  But, if you can be mature enough to look beyond that- you just might learn something].

  

How Money Became Debt Became Money Again

Where you shocked when you found out that the US Federal Reserve pumped $7.7Trillion in banks around the world in 2008 and 2009 to stop a complete financial meltdown?  Did you know that if they didn't do that, I would not be posting this blog and you would not be reading it?  Civilization as we know it would have ceased to exist by 2011.    2010 would have been martial law around the world and soon thereafter it is Mad Max and the Thunderdome Society.

So don't get so pissed if a few bankers made big bonuses from the Federal Reserve cash infusion.  They saved your ass and your way of life.   You should be thanking them.

So if the Federal Reserve "printed" $7.7Trillion why don't we have hyperinflation?  Because that amount of money was just enough to offset a massive deflationary spiral.  A commodel Coriolis effect of epic proportions drawing the turd of modern society into the septic tank of oblivion.

Deflation?  What Deflation?

The same deflation that is crushing Europe, the EU and the Euro right now.  You see, a financial institution will show "cash and cash equivalents" on their balance sheet.  Do you know what a cash equivalent is?  Well, one type is sovereign debt.  So Italy floats bonds and banks buy them and put them on their balance sheet.   If that bank owes money to some other bank, it can pay that bank with cash equivalents.  Or in this example, settle the payment by transferring Italian government bonds from their institution to another.  So-- Debt is Money.

These same institutions can utilize fractional reserve banking to multiply the leverage effect of these cash equivalents by creating loans using these government bonds as collateral.  Thus creating more money out of debt.  In fact, the more money a government borrows the more money a bank can create!  

UNTIL...those government bonds lose their value.  When interest rates on government debt rises (like 7% for Italy) then the bond's face value decreases and affects every other outstanding bond too.  This means assets (these cash equivalents) on the balance sheets of banks lose their value - fast.   And that means the likelihood of bank default increases.

Now you know what is going on in Europe.  A massive deflationary spiral is in progress.

Back to the US.  It is not when a US bank owns any European Government debt that puts it at risk.  IT IS IF YOUR US BANK IS OWED ANY MONEY AT ALL BY ANY EUROPEAN INSTITUTION- GOVERNMENT OR FINANCIAL.  Because- the deflationary spiral has made them all insolvent.

Now really back to the US... US banks in 2007 had massive amounts of Mortgage Backed Securities on their balance sheets due to the "housing bubble".  These MBS are "Cash Equivalents"!  That means banks can use them as if they were cash and they can make loans against them.  Guess what-- house prices collapsed, MBS rapidly lost their value and the US banking system became insolvent.

How bad was it?  Well $7.7 Trillion to be exact.  Ben Bernanke created that much money and pushed it to the banks.   And that is why the US banking system is solvent today.

And that is how money became debt became money again.

Notional Accounts - The Dirty Little Secret

You look at your bank statement or your pension account or, if you are fortunate enough, your brokerage account.  You see numbers.  But is what you own really there?

Let's say your statement says you own 10 shares of Apple Computer.  Do you?  Or do you have an agreement with your broker that if you sell those 10 shares they will give you the market equivalent in cash?

You don't own anything.  None of it is there.  It doesn't exist.  All you have is an agreement.  Your money is gone.  It was taken and, in turn, you were given a promise.

Promises are only worth the integrity of the person making the promise.  If the promise is being made to you by a corporation, well, you get the idea.

Bernie Madoff took everyone's money.  So did Jon Corzine of MF Global.  So did everyone else in the who's who of finance.  It is a dirty little secret that everyone is doing it and the public must never know.  But it is bigger.

When banks put money on deposit with your country's central bank, it is a notional account.  The Central Bank took the money from your bank and promises to return it.  The same thing happens to you when you place the money on deposit with your bank.

The only problem is that this is a game of "musical chairs" and you are playing with a blindfold with your ankles tied together.

See Something; Say Something; Next Pay Something

The next jobs program for your country is to starting paying citizens for reporting unpatriotic activity.  It starts by determining if you can get citizens to share information with the government for free.  If that doesn't work, start paying them for information and call it a "jobs program".  

* * * * wait for the two links below to fully load -- it is worth it * * * *



Just like the old Communist days... time to "name names".

A Rumble In The Jungle -- Or Why Greece Should Delay

Have you noticed that Inflation Protected securities (TIPS) have been on the rise all year?  Always good to have a bit of this in your portfolio when Central Banks around the world are printing money.  Here is two charts from today-- first is a TIPS ETF and the second is a TIPS Fund:

So while Central Banks print money and lower interest rates while governments understate Consumer Price and Producer Price Indices, it appears to me the self correcting marketplace is seeing something different. 

This is not cost-push inflation but rather a systematic reduction in the value of all money caused by monetary policy.

The good news is that all money is debt.  Therefore... if this reflects a devaluing of currency then that means our debt is reducing by the same rate.    Therefore... Greece should not accept any austerity since their debt load is falling by the day.  Click Here.



Free Household Goods From China

Apologies to my non-US readers because this is only possible in the US.  For US readers, this is a great example of how to capitalize on the good intentions but basic ignorance of the government.

The current US Government is "the gift that keeps on giving".  I dread the fact that they may not get re-elected making it so much harder to make money.   But for now, you need to take advantage of every opportunity presented.

To the less informed, President Barack Obama this week will announce a series of actions to help the economy that will not require congressional approval, including an initiative to make it easier for homeowners to refinance their mortgages, according to a White House official. Read it here.

Another profit windfall is now presented to you on a platter.   This is a little bit complicated so I will over simplify:

1. Form a US Limited Liability Corporation (LLC) created for the purpose of owning, occupying and refurbishing real estate property.
2. Fund your new corporation with $100.  (yes only $100).
3. For $100 you buy a HUD (Housing and Urban Development) sponsored home provided you agree to take over the existing mortgage.
4. Don't make any mortgage payments.  The property was probably in default anyway and it will take 6 to 9 months before anyone contacts you about your late payments and tries to foreclose.
5. Under this government program, you immediately qualify for an FHA 203K loan that can be used for "repairs and renovations".  You should be able to leverage up to $2,000 of loan for every $100 you place into the property.
6. So let's say for each property you do this at $1000 so you can borrow $20,000.  And do this for 5 properties to borrow $100,000.
7. With that $100,000, purchase a truck to enable the repairs and refurbishing.  Maybe buy some nice tools including that table saw you always wanted. An iPhone to keep in contact with people doing the refurbishing.  Perhaps buy some major appliances for yourself and family.  You get the idea....
8. Now don't be stupid.  You need to also make an attempt to repair and refurbish the property you just bought under this government program.   The problem is that you are not very good as  a repair man and you are an even worse business man.
9. Your corporation is forced to declare bankruptcy.   You default on the mortgage.  You default on the loans.  You keep the tools, truck and appliances because it is the US tax payer that is backstopping your loan because this was a government program to jump start the housing market.

WARNING: I have greatly over simplified this.  Not all housing qualifies.  Not every US state is participating.  203K loans do have some rules and regulations. BUT... the new rules go into effect in November and will be in place of 1 year.  Techniques were used to bypass the US legislature so no laws were written-- this was via executive order.

What we do know is this:

1. The government has put out the "free money" sign.
2. Hordes of clever people will flood the government offices.
3. The overload will ensure government employees focus merely on getting the workload "off their desk" ensuring little if any review of the applications.
4. This is a US election cycle so government money will flow freely.
5. Certain groups are well organized to capitalize on this "window".

So you are probably asking, "where does China fit into all this?".   Well, the US government is backstopping the purchases you made with the loan you never intended to repay.  The US government is also borrowing $1 for every $2 it spend from the Chinese government and the US government doesn't plan to repay the Chinese either. 

Perhaps you can see now how it is your patriotic duty to capitalize on this program.

We All Swim In The Same Pool...

...gene pool, that is.  We have so much in common that seeking common ground should be easy.  Let me illustrate.

Occupy Wall Street is amassing substantial funds through donations.  With that much money, do you know what you have to do?  Easy... set up a bureaucracy and set up a bank... And guess what happens... even in the OWS movement there are now the haves and have-nots.  Read it here.

The US criticizes nations that treat their people poorly (human rights) yet feels perectly comfortable using a drone to kill a US citizen that it doesn't like.   The act is clearly illegal but apparently if you do it in another country and make the kill from long distance it is ok-- even if you take a few other people to their death at the same time (but they weren't US citizens, so it doesn't count as much).

Other countries criticize the US for allowing its monetary policies and regulated financial system to bring the financial world to the brink of disaster in 2008.  The fact that the US government forced its banks to lend to people who could never pay back their loans is absolutely outrageous!   Now we sit and wait as the EU will give (it is not a loan because they will never pay it back) Greece another $8B to pay next months bills.

Western countries (EU and US) delight in their participation in the removal of evil, murderous dictators in Middle Eastern and Northern Africa nations only to have those despots replaced by groups of murderous mobs.

China is criticized for manipulating its currency while at the same time the US Federal Reserve floods the world with trillions of newly printed dollars.

Todays financial markets are schizophrenic because of "all the uncertainty".  This is absurb.  The sequence of events for the future are obvious.  Make you plans accordingly.  The world is very predictable because we are all the same, behaving in the same way, thinking the same thoughts, and  dreaming the same dreams. 

Is Everything In Position?

Needless to say, I was disturbed about the recent decision to "go public" about the Iranian Terror Plot.
I say this because I believe that these plots are going on all the time and are addressed without fanfare and in some cases appropriate secrecy.   So why is it important now to put this in the news?  Why go public about the incident?

Perhaps it is time for another war.  NATO got its much needed practice in Libya (nothing beats war games like a real war).  Isreal has moved its warships off the coast of Egypt (apparently the Muslim Brotherhood has significant Naval capacity).  And now for the US Navy...

The most recently released public information about deployment is shown below:

Click to Enlarge

An amateur would assess the situation as follows:
(1) The two battle groups in western pacific have their home port in Japan.  However it looks like they are out and about making sure China knows we are paying attention to what is going on.
(2) Three battle groups are poised off the coast of Iran for obvious reasons.
(3) The rest of the battle groups are defending the East and West coasts of US.  The greatest risk to the US is for some Iranian frieghter to launch a missle with EMP payload thus driving the US back to the stone age.

If things get really bad, perhaps the US will suspend the 2012 elections due to the emergency and we won't have to be burdened by those ridiculous political TV commercials that interrupt our zeitgeist.

Owed to a Grecian Earn

Apologies in advance to John Keats....

Interesting article from Der Spiegel.  If your German is a little weak, let me summarize for you:

(1) Greek government warns EU that if they don't get their bailout money by mid-October they are going to default as a country.


(2) Jean-Claude Juncker, Prime Minister of Luxembourg and President of the EU Group, announced on Tuesday that the next installment of the bailout package wouldn't be paid before mid November.


(3) No problem, said Evangelos Venizelos, Finance Minister of Greece, and announced that his government had suddenly found €1.5 billion in a bank stabilization fund that was set up during the crisis of 2008. Enough to keep Greece liquid until mid November.




Theatre of the Absurd, wouldn't you agree?

News from Greece: The Check is in the Mail

Greece can't implement new austerity tax plans because they ran out of ink to print the forms...
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Greece can't implement new austerity tax plans because tax collectors plan to go on strike due to additional work load and threats of lay offs...
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Greek Citizens block access to Finance Ministry not allowing European officials to examine "the financial books" of Greece to see if they are cheating on their promises...
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The last story is almost too much to believe.  EU officials actually need to see hard copy documents?  You mean Greece does all its accounting on paper and there are no faxes?  You mean EU officials couldn't access the Greek Government Systems? They had to travel to Greece personally?

This must explain why there was no ink left to print new tax forms it all went to printing government records on paper.

That is the problem with the Euro... if Greece had their own currency they could use all their ink printing money instead of paper records and tax forms.  Rather than borrowing money from the EU and IMF, they could just keep printing money and giving it to their people-- it's the American way.

Remember: Doomsayers free ride; all others provide data

Remember:  Anyone blogging, on the radio, or TV that is predicting disaster is allowed 100% of their air time to spew their gloom and doom.  However, when ever someone predicts that things are better than they seem, all of their air time is consumed with demands for proof and endless debate by the host.

Short sellers are legally allowed to say anything they want about a company and it doesn't have to be true.  CEO's are muted by laws that do not allow them to make forward looking statements. 

People are more likely to believe that things are worse than they are.

But, eventually the shorts get squeezed because the global economic engine is alive and well.  Our current problems are not economic.  They are political and they are monetary.   It is Politicians and Bankers who created the problems and because they control laws and money they can never be held to account for their impact on common people.

When the turnaround comes, and it will, the same politicians and bankers will be standing in line to accept the credit.

Since the creation of the markets, it has been a macro "bull run".  The general trend has always been up. 

The future is very bright but I have no data to defend my position.  Even if I did, would you believe it?

Relocation Services

Dear Readers:
I wrote this piece over two years ago but I was advised not post it because it would be too upsetting.  But now since we are well past our Financial and Political instability problems around the world, I can post this and continue to fulfill the TEDBITS mission of insight and entertainment for the Hi-Q.
Sincerely,
Tedbits


There was a lot of unrest because of what was happening. Confidence was lost. The system was collapsing. Those with much to lose- lost a lot. Those with little- lost everything. The politicians couldn't find any new people to blame. The people ran out of patience.


It started in the cities. We watched it on the news. But eventually it spread.

The police, whose job it is “to protect and to serve”, could do neither. There was too many of us to protect against so many. Police officers also had their own families. No one blamed them.  Many of them were lost at the hands of those with nothing to lose.

It had been so long since we worked together as a community that the task of coming together was overwhelming. We lost the ability to organize and effectively structure for the common good. There was no basis upon which to make decisions or agree on plans.

One day, the military arrived at the top of our street. A soldier knocked on our door, who looked exactly like the proud military hero of our dreams. He was young, strong and confident. He spoke well. We felt comforted.

He was unarmed and clearly no threat. Telling us that there was no possibility for the government to protect us in our homes, he handed us a brochure that gave us information about where we would be relocated and what we should bring. It even included luggage tags that we were to affix to travel luggage, one bag per person, to be left by our front door to be picked up later by the quartermaster corps.

The letter said that we were free to “stay in our homes” rather than participate in the relocation. It also warned that there was no guarantee that there would be a second chance as the situation was fluid with matters worsening by the hour.

Our decision had to be our own. All communications, phone-internet-cable, had been down for weeks. The electrical power was unreliable and had been totally out since this morning.  We would listen to the radio in our car for news but didn't dare drive anywhere- it was getting too dangerous. We were on our own.

In 2 hours, buses would be available at the main intersection near our house. We had that amount of time to make our decision, pack, tag, leave our bags at the front door and get to the buses.

So we did, never to return. They lost our luggage. But we don’t need it anymore.

Hedging for the common man

Last year at this time, I posted a well proven technique for making money from what is called the "carry trade".  I showed you a method whereby you can do what the big banks do and returns are nearly 100% guaranteed.  You can refresh you memory here.

That was Carry Trade for the Common Man and now it is time for Hedging for the Common Man...

Fanfare please...[click]

It is simple:  When gas prices are rising buy XOM or DBO.  When food prices are rising buy food companies that can pass on price increases to consumers.  After a nice run up, cash out.  Here is the math:
BASE PRICES + (PRICE INCREASE - YOUR TRADING PROFITS) >= ZERO you win.

I have decided to buy my first iMAC computer.  With the recent two day collapse of the market, I was finally able to buy a few shares of Apple Computer at a reasonable price.  Apple is an unstoppable stock right now relative to the total market, so when AAPL resumes its run, I will cash out and have myself a free computer.

This is why people who spend their life watching American Idol, the Kardshians, Glee, etc. are getting poorer.  But they are happy in their ignorance so I am happy for them-- after all life is short so might as well turn on the TV.

Back in the Saddle

Haven't posted since April but I have been really busy working on dual citizenship for my family and moving my soft assets into hard assets geographically removed from where I live today.  I am sure you are doing the same thing so you know how time consuming this is.

Anyway, I decided to start posting again because everyone has been emailing with questions and discussion points and it is too hard to have a conversation over email.  So, mostly I hear from US citizens who are deeply concerned about their personal situation as America continues to have debt, currency and related economic problems. 

Here is why you should not worry:

(1) All fiat currencies return to their original value-- zero. So will the US dollar. The US has had several currency collapses in its short history. In fact the Federal Reserve Note (the dollar) is not even 100 years old yet. Currencies have collapsed around the world in many countries throughout time. My point is, currency collapse is manageable if it is carefully engineered. What you are really seeing is the careful, thoughtful management of a collapse. If it is handled correctly, the currency will be replaced with something else. 

PROOF:  The value of Iceland's currency in 2009 was zero. However, Icelander's continued to buy and sell to each other using Icelandic currency. Why? Because a Kroner was still worth a Kroner to Iceland... it is just that no other country wanted them.

(2) When the US dollar is worth zero we will still buy goods and services from each other in the US using dollars. But what if no one else in the world will accept dollars? We can't import anything because no one will accept our money!!! Really? Think about this...

(2A) If we can't import anything does that mean we can't export anything? If so, how will the world feed itself since one of the largest US exports is food. To a hungry world food is more important than money. So don't worry about the dollar because we export food.

(2B)  If we can't import anything does that mean we can't buy the 20million barrels of oil we consume every day? We don't have to. The US is energy self sufficient and natural gas, coal and petroleum reserves within the continental US and Alaska will last 300 years. So don't worry about the dollar.

(2C) There is always pain in transition so yes, cities will burn, people will be killed, periods of martial law may be required and aspects of the US constitution will be suspended. These are all temporary. The US military will come home to patrol the streets, order will be restored and we will rebuild. The feeling of unity and togetherness normally experienced during a common disaster will fill our hearts and we will be Americans again.

(3) But what about the massive US debt burden? Who cares. We were never going to pay it off anyway. We took exports from other countries and gave them little green pieces of paper in return. You tell me who was smarter. And what can they do? Bomb us? I don't think so.

(4) When will all this happen? Most likely very far out into the future. Too many people in powerful positions (government and non-government) have a vested interest in the status quo. The currency crisis and, its impact on the economy and wealth, started more than 30 years ago. Our darkest hours were between 1978 and 1982 but no body knew it because of the lack of mass communication and poor education levels to understand the message and its implications.

SOME HISTORY: In the early 1980's, people vested in the status quo managed the collapse. US unemployment was higher then. US interest rates were horrible. And the public was faced everyday with the prospects of mutually assured destruction from the USSR. But somehow we survived and somehow, some of us, improved ourselves and our situation. US banks were overexposed to South American currency collapse and hyperinflation. We were so close to the edge of Armageddon. But we didn't know it, so it didn't bother us.

REALITY:  Today we are more aware. 24 hour news coverage for what is less then 15 minutes of news. We are victims of "speculative factualization". So you worry more. You are also older and you feel more vulnerable.

BOTTOM LINE: But if you accept the above, the future is very bright. I am a buyer and if I am wrong what difference will it make? But if I am right....

"When there is blood in the streets be a buyer even if that blood is your own".... Rothschild circa 18th century.

"Gamblers understand what Winners don't know". Ann Wilson circa 1980's

TILT

The data is in.  2010 Government payments to citizens in the form social security, medicare, medicaid, unemployment benefits and stimulus programs that paid money directly to citizens totaled $2.3 Trillion.

Tax receipts for 2010 totaled $2.2 Trillion.

That means all the rest of the money the US Government needed to spend to keep things operating and pay the interst on all the previous years of borrowing needed to be borrowed.

The US Government is effectively borrowing money to pay the interest on its debt.

The US Government is borrowing money just to operate.

Now for your investment question of the day... Should buy 1 ounce of silver or 1 share of JPMorgan?  They both cost the same in US Dollars.

A weakening dollar (because the only one really lending to the US is the US Central Bank) is causing oil prices to creep up because oil is traded in US Dollars so it takes more dollars to buy a barrel of oil.

This pushes commodity prices up so those companies with pricing power to pass along increase costs (preferably before their cost actually go up) will do well until the double dip.  

Some say the US is exporting inflation by devaluing the US Dollar causing food, fuel and essential needs to increase in price around the world.   This is not true.  Inflation is ocurring around the world because these countries peg their currency to the dollar.  So, as the dollar goes, so does their currency.  If they let their currency float they wouldn't have this problem.   But they won't change because if their currency becomes stronger then their exports would slow double dipping their economics.

So we are in a deadly embrace.  Snakes emeshed in each other's death grip.

This has happened many times before and eventually things right themselves.  But in the mean time, the investments that worked for you 10 years ago probably won't work now nor in the next few years.