Merchants of Death

Here is an interesting graph. Draw your own conclusions. Click to enlarge.

Inflation Unwind?

Because I am short the US Dollar, I watch US Treasury auctions very carefully. They continue to be under subscribed requiring "Primary Dealers" to buy what is unsold. This is the downside of the normally positive edge you get for being crowned a Primary Dealer.

The problem I see is that the amounts being bought month after month by these primary dealers exceed the cash on hand in the balance sheets. This means that the transactions are being conducted off balance sheet and someone is giving them the money to do the purchase. There are only two entities large enough to fund such actions: (1) the Federal Reserve itself could print the money and give it to the PDs off-balance sheet or (2) The CBO China could do it (but I doubt it).

Action (1) above is essentially quantitative easing [printing money] but being performed in a way that is invisible. This is becoming too big to unwind with annual US debt approaching $2T/year. This means inflation.

While I strongly feel that Action (1) is happening, I was is a discussion group with a fairly intelligent Conspiracy Theorist who believes Action (2) is happening. His idea is that Countries conquering other countries through war is passe'. He believes the 21st Century conquering is done by one country simply purchasing another. It is bloodless, doesn't destroy valuable assets and allows the respective economies of both countries to stay intact. He laughs when I point out that I think the US should sell Alaska to China by saying that I am only partially right. He contends that the whole country is being sold for the purpose of creating a New World Order, elimination of the United Nations, a the formation of a "Mega Country" [China US merger] which will control the world.

When I hear stories like this it makes me think my assessment of the situation is very rational. I think off-balance sheet is happening in a very big way.

Keep an eye on UDN, it is a method for US Citizens to short the dollar.

Customer Relations

This post is an addendum to:
http://tedbits.blogspot.com/2009/06/customer-segmentation-on-global-scale.html

And is based on a new article reported here: http://apnews.myway.com/article/20090728/D99NE5E00.html

Here is your bottom line:

"Obama dispatched his top economic officials - Treasury Secretary Timothy Geithner, National Economic Council Director Lawrence Summers, White House budget director Peter Orszag and Federal Reserve Chairman Ben Bernanke - to try to reassure China that the U.S. will not let deficits or inflation jeopardize the value of Chinese investments.
U.S. briefers said the president's team told the Chinese that the United States was committed to making sure the economic and monetary stimulus being used to fight the recession did not fuel inflation.

The Chinese, who have the largest foreign holdings of U.S. Treasury debt at $801.5 billion, have been expressing worries that soaring deficits could spark inflation or a sudden drop in the value of the dollar, thus jeopardizing their investments. Chinese officials said those concerns were raised during Monday's talks."


What do you think happened? Vote here with your reply:

(A) The Chinese accepted the words of the US government officials because they like fancy speeches and are enamored with clever Americans.
(b) The Chinese asked for and got financial concessions (like inflation protection) for their $800+B investment
(c) The US offered to sell Alaska (after all the US is not using it for anything) to the Chinese for all the US Dollars held by the Central Bank of China and the retirement of all US Debt held by the Chinese
(d) The US Government told China that they (China) were really screwed because we plan to crash the dollar and not pay on any of the debt. [Known as the Argentina Solution]


You can reply anonymously, so let's hear your vote.

Cowboy and Street Thug

FINE PRINT: What follows is a work of fiction. Any references to persons, legal entities or governments (living or dead or undead) is purely coincidental. The following is for entertainment purposes only. Any information that follows is neither a solicitation to buy or sell securities. The writer of this article may or may not own such securities at the time you are reading this article. And, don't be a complete idiot-- do your own research before you buy financial instruments of any kind.

Back in March is posited the following: China and Commodities Will Recover First

It was harder to make money under the cowboy but the new guy is so predictable that this is like taking candy from a baby. No wonder Wall Street loves him and no wonder they supported his election.

The cowboy operated under UN Resolution 1441 and there was no doubt what the end game would be: If the United Nations was to have any credibility then American blood would have to be sacrificed. He wasn't a smooth talker but there was no doubt about his willingness to step into the street for a gun fight. UN Resolution 1441 authorized military action against IRAQ and he took it.

Today we have the new guy. And, we have IRAN. Everthing was fine with a the December 2009 deadline on nuclear ambitions but the new guy decided to publicly move the deadline up to September. There is no UN Resolution that IRAN comply with this on any date! We are mano y mano now baby!

What happens in September?

(a) Will IRAN suddenly capitulate to the United States?

(b) Will the US attack IRAN, without a UN Resolution allowing such, because they didn't meet the September deadline ?

(c) Will the US have its surrogate ISREAL attack IRAN so the US can save face?

(d) Will IRAN ignore the US demand thus allowing a smoother talker of nuance, to point out the differences between cultural calendars and timekeeping that were no doubt at the heart of a timing snafu?

Given that (a) isn't going to happen all the remaining options are financially destablizing with a commensurate "flight to safety" to follow. With US Treasuries increasingly doubtful as "safe" given US government insolvency, some money will go into commodities and China. The dollar will collapse either because the US cannot fund another war, properly pay its surrogates, and/or lose its standing as a world leader.

I continue to like DBA, DBB, DBC, DBO, FXI and GLD.

Computer Pgm To Manipulate Markets Stolen!

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

PROCEEDINGS BEFORE MAGISTRATE JUDGE KEVIN N. FOX,
UNITED STATES DISTRICT COURT


What follows is an excerpt from page 8...lines 3 through 7...

3 activity. In addition, because of the way this software
4 interfaces with the various markets and exchanges, the bank
5 has raised a possibility that there is a danger that
6 somebody who knew how to use this program could use it to
7 manipulate markets in unfair ways.


I am not a lawyer but I play one in the blogosphere. So let me interpret this testimony and then ask some hypothetical questions (which have nothing to do with the case).

FACT: Plaintiff has stated, as a fact, that the program can be used to manipulate the market in unfair ways.


QUESTIONS:

1. How would you define manipulate?
2. Does Goldman Sachs' use of the program constitute manipulation?
3. Would not such manipulation affect the market both during and after the fact of the program's use in both direct and indirect ways?
4. How would you define fair?
5. Does Goldman Sachs' use the program to manipulate the markets unfairly? (this is like asking have you stopped beating your spouse)
6. Is there a qualified, independent body that examines Goldman's use of the program to ensure compliance and absence of malfeasance?

Full text of testimony is posted on SCRIBD here is a convenient link: http://zerohedge.blogspot.com/2009/07/aleynikov-transcript.html

California won't accept their own IOUs?

The US state of California, formerly the 7th largest economy in the world began issuing IOU ("I Owe You") certificates to people and businesses that they couldn't pay because they didn't have enough money. The IOU's are technically registered warrants meaning that they are convertible to legal tender.

Here's the irony: Let's say you were a contractor and did some construction work on state owned building. The state government will give you a registered warrant (IOU) that means they will pay you at a later date. However, if you hold CA Registered Warrants and want to use them pay any bill you owe to the state like taxes, licenses or workers compensation insurance, California will not accept their own warrants in return.

Don't believe me? search their own site: http://www.ca.gov/

How to make money on cap and trade

Cap and trade (of anything) is the next financial bubble. One thing is true about all bubbles (ask the Dutch about tulips) and that is: "the first in, win" and the last out get screwed.

Cap and trade sets of up a market for trading greenhouse gas "allowances". This means that there will be a market for futures and futures markets will also provide the opportunity for index type investments. Those investing in all these vehicles will seek to hedge their upside and/or downside risk providing for the creation of collateralized obligations and offsetting credit default swaps.

Sound familiar? This is Financial institution's dream come true- a gift from the US Gov.

My point is... get in now... establish your position...and don't be greedy. When wall street and the USGov team up, you've got to be "in the game".

If you make a ton of money you won't care that your electric bill grew by 50%, US manufacturing completely shut down, and gasoline is $8.00 a gallon. In fact, you will facilitate the whole process by being one of those individual investors that is helping provide liquidity to those efforts to remake America.

The informed will make money, the poor will get tax credit offsets and those in the middle and those frozen in the headlights will foot the bill.

------------- I hate long posts but if you want to know how this all going to work:

I read the legislation, so let me bottom line it for:

1. Each year the USGov decides how much "man made" greenhouse gases can be introduced into the atmosphere by citizens and companys for which the USGov has jurisdiction (call this "the allowance").
2. Some of "the allowance" is allocated to citizens and companys. They will not get enough of "the allowance" to actually operate in a given year.
3. The rest of "the allowance" is given to Agencies of the USGOV or Non-Governmental Organizations who do not actually emit greenhouse gases but can "sell" their portion of "the allowance" to those that have been "underallocated". They will no doubt sell 100% of their "allowance" because they don't need an allowance to begin with. Get it?
4. The combination of 1, 2 and 3 above are a simple formula for taxing everyone in line #2.
5. These taxes are then either (1) passed on to the consumer or (2) avoided by curtailing production in the US [loss of jobs].
6. While reduction in greenhouse gas emissions can be measured, the affect on global warming cannot since there are too many other variables at play. Hence, the success at raising taxes is a certainty; the reduction in global warming is not.
7. Only Western Europe and the US are pursuing these policies. China and India are not since they have several billion people to keep happy.

We need a failure Czar

The US government has 15 "Czars" in the executive branch ("Car Czar", "Compensation Czar", etc.). I would much prefer "Car Pope" or "Compensation Pope" so we could presume some degree of infallibility when they speak Ex Cathedra.

Speaking of infallibility. If "we learn from our mistakes", don't you think that failure is too important to leave to chance?

If I am "too big to fail"; does that mean I am "too big to learn"?

And speaking of education, wasn't it Benjamin Franklin, that great British separatist who noted, "The only thing more expensive than education, is ignorance"!

But I disagree. Ignorance is the domain of the innocent (ex: little children). We are really talking about stupidity and stupidity comes with experience.

This is why "History Repeats Itself" or better-- People repeat history.

So now I offer you some history about what happens when there are too many Czars with too much power, who answer to no one:

• In January 1905, an incident known as "Bloody Sunday" occurred when Father Gapon led an enormous crowd to the Winter Palace in Saint Petersburg to present a petition to the tsar. When the procession reached the palace, the national police force opened fire on the crowd, killing hundreds. The people were so aroused over the massacre that a general strike was declared demanding a change in government. This marked the beginning of the revolution and the country was paralyzed and politicians grew desperate to keep their positions of power.
• Rumors where then circulated that food and fuel would soon be in short supply and inflation was mounting. Strikes increased among formerly self-sufficient citizens who were forced to take low-paid, government jobs mostly in the military. The media, typically friendly to the government, feared for their existence and spread public distrust of the regime so that they would be seen on the side of the people who, by now, had organized themselves into well-armed regional militias.

It didn't go well for the Tsar; so what can we learn from his mistakes:

1. Don't allow the people to arm themselves,
2. Maintain control of the media,
3. Get the bankers on your side by giving them lots of money,
4. Don't leave community organizing to chance, fully fund it so you can control it,
5. Make sure the people are less afraid of you and more afraid of something else (like pensions, flu, healthcare) -- maintain "rock star" status if you can (see point 2 for help),
6. Find your semi literate, mystic Grigory Rasputin equivalent before it is too late.

Customer Segmentation on a Global Scale

If you are an important customer, you expect special treatment. And you should get it. It is good for you as the buyer and it is good for the seller.

Most "good" customers are those that drive volume purchases. The seller usually offers a discount to the buyer and, in turn, the buyer buys large volumes. Both buyer and seller win.

Sometimes the key customer doesn't get a discount but rather some other consideration. Perhaps a rebate to be delivered at a later time. Perhaps preferential treatment that is hard to value but valuable none-the-less because it is not available to "lesser" customers.

China is the United States' most important customer when it comes to buying US government debt.

Why did Pelosi go to China? Why did Geithner go to China? Who will be next to pay a "sales call" to this most revered customer of US Debt.

Have you or your broker or your pension or your 401K bought any treasury bills lately. Do you think they (you) are getting the same deal as China? Are we all paying the same price? Are we all getting the same advertised, published return on investment?

What am I thinking here? I am quite sure we are all paying the same price and we are all getting the same benefits regardless of who is big and who is small. I mean after all, isn't it really all about fairness and a "level playing field"?

When is the next auction, I heard they are serving General Tso's Chicken....

BTW you've got to watch this if you like General Tso' Chicken...
http://www.ted.com/talks/jennifer_8_lee_looks_for_general_tso.html

Should I buy GM?

FINE PRINT: What follows is a work of fiction. Any references to persons, legal entities or governments (living or dead or undead) is purely coincidental. The following is for entertainment purposes only. Any information that follows is neither a solicitation to buy or sell securities. The writer of this article may or may not own such securities at the time you are reading this article. And, don't be a complete idiot-- do your own research before you buy financial instruments of any kind.


Buying the stock:

(1) All the people who are going to own the stock after bankruptcy intend to sell it for cash. The government says it want's out. The Labor Union intends to sell the stock to pay for medical benefits. When there are more sellers than buyers a stock goes down.

(2) I heard Bob Luntz (Former Chairman of GM) on TV (2009.06.02) and he said GM will do well because the US dollar is weakening and this makes GM more competitive. When a Chairman is counting on currency for success you know this is a problem.

(3) He further indicated that the new breakeven point for GM is 10Million cars per year. Since "we" haven't been making any cars with "our" plants idled and "we" are cutting "our" product line in half and "we" are dramatically shrinking "our" dealer network; I couldn't exactly figure out how this is going to happen. He further implied that with 2million new drivers on the US roads each year; achieving breakeven was within reach. What do you think of a former Chairman focusing on breakeven rather than profitability? Emphasis mine: If you are a US taxpayer then you own GM; if you are not a US citizen but your country buys US Treasuries you are an effective owner of GM too!

(4) GM is now a referendum on Obama. Therefore this must be successful. Same with Chrysler. But not the same with Ford who didn't need mother's milk. If Ford is successful and GM is not... well, you get the picture.

(5) The Chinese are buying Hummer. Perhaps the recent visit by our Treasury secretary sealed the deal. I am sure they paid as much for Hummer as Fiat is paying for Chrysler. But I seriously doubt you will be able to find ANY reliable information on the terms of the sale or related recourse liabilities assumed by the US government (er... I mean GM corporation).


So my final anaysis is 3 sell signals; 1 buy signal; 1 neutral.

In any case, there are so many better places to put your money, why buy a car company? Did you throw money at the airlines when they were/are going bankrupt?

Should you buy a GM Car?

Yes... but only if it is a Saturn. ;-)

Californious est omnis divisa in partes tres

FINE PRINT: What follows is a work of fiction. Any references to persons, legal entities or governments (living or dead or undead) is purely coincidental. The following is for entertainment purposes only.

How is your Latin? Similar words were uttered by Caesar when speaking of the soon to be conquered area known as Gaul (France/Belgium/Some Switzerland).

Similiarly we await our modern day Caesar to proclaim the future of the vanquished, bankrupt piece of geography known as California. The 8th largest economy of the world is insolvent and they are too big to fail.

If we accept that patterns of the past will guide our future then permit me to run a scenario. Chrysler was too big to fail and the recovery plan in place for this major car company may be just the answer to the California problem. Let's get started:

The current plan is that 55% of Chrysler goes to its labor unions. 35% goes to the Fiat car company- an Italian company. Neither of these groups actually owns any significant portion of Chrysler today so they are getting 90% of the company at no cost. The remaining 10% goes to the original owners of Chrysler who, by the way, used to own 100% of the company [but not anymore].

Now for the entertainment portion of this posting:

THE CHRYSLER FORMULA FOR CALIFORNIA

(1) Let's give 55% of all assets in California to the state labors unions.

(2) For the 35% piece, we need to find a non-US constituent that willing to accept 35% of the assets (at no cost to themselves). I suggest Mexico. California used to belong to Mexico and it seems only proper to return at least a portion back to Mexico at this time. Fairness at work, don't you think? Plus I would suggest that the US Government also issue an apology too, just for good measure.

(3) The remaining 10% would remain with the citizens of California. Which means each home owner would own only 10% of their house. Same with their car, their 401K, their bank account, their motoways, their stadiums, etc. etc. etc. If you own a business in California, you would now only own 10% of it.

Oh, by the way, if you own any California issued bonds, they are worthless. Yes, I know that US law requires secured bond holders to be paid first, but that law was overridden, without recourse, by the US Government. No legislative oversight. No judicial review.

If it will work for Chrysler it will work for California.

A new one-world currency - Final Chapter

This will be last in a series of three posts on why a one-world currency will emerge to replace the US Dollar. My first two posts are here:

(1) http://tedbits.blogspot.com/2009/04/secret-societies-are-your-friend.html
(2) http://tedbits.blogspot.com/2009/04/worlds-8th-largest-economy-seeks-us.html

This final segment sums it all up. This is happening so fast that I began to get concerned that this treatise would be historical rather than predictive. Example: China allows the Yuan to be an international trade settlement currency-- that happened much faster than I thought it would.

PART III--- We are all going to be poorer together....

The concept of the EURO has its positives and negatives. And, as long as every sovereign nation sharing the currency is not failing "too much", it all works out. However, get a few "weak sisters" in the family and sooner or later the other brothers and sisters tire of carrying them. Keep an eye on Greece, Italy and Spain.

The UK didn't play the EURO game but that didn't make them immune. Their recent government bond auctions were under subscribed. That means no one wants your "IOUs" at the interest rate you offer or maybe at all. This is now happening in the US as the Treasury Auction has been under subscribed. No worries mate, the Federal Reserve (which is not part of the US Government but rather a private bank that the US government entrusted with the power to create money out of "thin air") will buy the bonds so the US government saves face.

Poor Iceland. Nobody wants their currency which means they can't buy anything. No one will loan them money because they don't have any money that is worth anything to payback the loan.

Actually, there are a lot of countries that are bankrupt-- some are doing desperate things. Zimbabwe is probably the worst. But, Argentina confiscated every one's pension savings. Venezuela is selling their soul to China. And, I could go on...

The risk of sudden military action is great. China has bought everything from mineral rights to political control in many countries. They are using US dollars to do it. What they can't buy they are now prepared to take as their military build up is approaching unprecedented proportions.

Don't think China will do it? You try dealing with several billion unhappy people all at once. Do I need to tell you what happens? You see, no other country faces the challenges that China does. No other country, nor its citizens, truly understands China's dilemma. And because we don't understand, we are in denial about what may happen.

But what about the US? Yes, quite a few "bad actors" has ruined the show for everyone else. The country entrusted to be the steward of the world's only "reserve currency". The country that is the world's policeman, who only asked one thing of every other country which was: "May we have a place to bury our dead soldiers who defended you?". That country created too many financial instruments that created too much dollars out of nothing. And when everything started to crash, continued to print more money to solve the problem.

“The significant problems we face cannot be solved at the same level of thinking we were at when we created them.”
Albert Einstein

But "printing money" in this sense does not really happen. It is more about moving numbers across a computer screen. Want to add more US Dollars to the world? Simply type in the desired amount into the Federal Reserve's computerized balance sheet. The rest is automatic. Quantitative easing, printing money, increasing the asset number on your balance sheet by typing it in... they all mean the same thing.

And every government is doing it. Why? Because it is easy and does not require any sacrifice from the people in that country. It keeps the current politicians in power.

But won't this burden future generations with debt, you might ask? No. Debt is only real if you plan to pay it off. Let me say that again. The only people concerned about debt are those that feel an obligation to pay the debt off.

Hence the emergence of Special Depository Receipts (SDR), the new world currency. It will not replace your country's currency but it will stand between your currency and the exchange rate of every other country's currency.

This means that there will no longer be a USD to EURO exchange rate. All currencies will be expressed in terms of SDRs.

So here is the sequence:

(1) All governments "print money" to deal with the economic collapse.
(2) Printing money results in inflation.
(3) Inflation hurts the people.
(4) All nations devalue their currency against the SDR
(5) The national debt of each country is reduced by the devaluation.
(6) Inflation is curtailed.
(7) Everyone is poorer because everyone's currency is worth less.

Now you understand why so much money is being printed and an unprecedented money grab is now underway. When everyone's currency is devalued, we are devalued together. But if I have been able to "front run" this devaluation and collect more pieces of paper now, I will be relatively better off than you when devaluation occurs. I got richer while everyone (including me) got poorer simultaneously.

The math is simple.


Epilogue: I know this is difficult to understand because it is hard to describe:
http://tedbits.blogspot.com/2008/12/gravity-and-inflation-point-of-view.html

But history tells us that the youthful America destroyed the Pound Sterling (a former global reserve currency). Also, the US Government confiscated gold from its citizens paying $28/ounce and then, when the deed was done, fixing the price of gold at $35/ounce basically devaluing everything by 25%.

It happened. It happens.

And now that you know what is going to happen, rest easy because there is nothing you can do about it.

With no compelling vision; Let's try some more fear

I am not a doctor nor am I an economist. However, in the blogosphere, I play both. However, God gifted me with the uncanny ability to synthesize and conclude ["Connecting the Dots"].

Also, for full disclosure, I took steps to prepare my family for the FLU outbreak 2 weeks ago, well before it was fashionable. I am ready, are you?

Now, let me tell you why I wasted my money and what this has to do with a "one global currency". You see, for currency collapse/replacement to occur, you must have rampant protectionism between countries to magnify the monetary problem. Nothing like a pandemic to enable countries to "close their borders".

World governments trying to solve a debt induced economic crisis with more debt and more printing money are coming to the harsh reality that this is probably not going to correct the problem within the next year or so, if at all. Iceland is bankrupt. More that 15 countries are now considered or labelled "near insolvent" including the UK, Greece, Spain, Ukraine, and some other smaller countries." China is swapping out of US dollars for natural resources. And the US Federal Reserve bank is forced to buy US Treasuries because their isn't enough buyers of US Debt.

The new problem is-- governments began to leak information that things were starting to look better. Their comments were based on second derivative thinking. And sadly, once you tell citizens that things are improving, you really own the problem if things get worse. Not good for continued employment as a politician.

But what if we could blame the next leg downward on a pandemic? No one could blame our governments if we suffer further economic contraction or at least failed recovery because of an "act of god".

Here are some facts which suggest the public may be being played for a fool again to ensure that if economic woes continue or worsen we won't blame the government.

(1) Actual SWINE FLU deaths in Mexico according to WHO is only 7.

(2) US government launches a media blitz to concern and scare its citizens (I've spared you a link to the inane comments of the US Vice Presidet).

(3) Average annual deaths in the US related to FLU: 36,000 per year

(4) Last FLU epidemic in the US? February/March 2008

(5) Percent specimens resistant to targeted H1N1 antiviral? 0.4%

Don't believe me? Go to the Centers for Disease Control.


Interesting isn't it? What do you think?

A Decoupling Double Bottom

So I countinue to stand behind my China recovery strategy and suggest you watch FXI, DBB, and UDN. Part of this outlook includes the devaluation of the US Dollar and its subsequent replacement as the global reserve currency. Think of this post as part 3 of the emergence of a new global currency- the previous two posts are:

(1) http://tedbits.blogspot.com/2009/04/secret-societies-are-your-friend.html

(2) http://tedbits.blogspot.com/2009/04/worlds-8th-largest-economy-seeks-us.html

Perhaps you are familiar with a chart pattern called a double bottom. It looks like this and is quite common.

Well, we are setting up for another major double bottom as was seen in the US during the late 1920's and early 1930's.

As we are right at where the red line is pointing. The next leg down is all set up because the fundamentals that caused the downturn have not been remediated. [click on chart to enlarge]

The first leg down which occured during late 2007 and followed through until today, was the typical pattern where the US "gets a cold" and everyone else "gets the flu". However, now that the top of the "W" has formed the next leg down will show a decoupling between the US and China. The US will go down due to fiscal and monetary policy while China will minimally softland and recover (ie: No "W" formation).

Why will decoupling occur? (1) because China is creating its own "consumer class" to be less dependent upon the US consumer and (2) China is trading its US "paper" for raw materials from Russia, Africa and Latin America-- better to own hard assets at the time of currency collapse.

World's 8th Largest Economy Seeks US Government Help

So far taxpayers in the United States have channeled trillions of dollars into failing institutions such as General Motors, Chrysler, Freddie Mac, Fannie Mae, Deutsche Bank, Société Générale, Barclays, AIG, Citigroup, Goldman Sachs, the International Monetary Fund, etc. etc. etc.

Now the 8th largest economy in the world is asking the US Government to underwrite its debt which means they are asking the US Taxpayer to insure their debt.

News reports indicate that the People's Republic of California:

1. Needs to float $13B to $15B in debt to stay afloat,
2. The interest rate they are offering is not attractive to investors,
3. The return they would have to offer to generate interested buyers they cannot afford,
4. They need the money,
5. They want to offer the lower interest rate and have the US Government guarantee the bonds in case they default,
6. Such US guarantees are the burden of the US Tax Payers in the event of default,
7. California says they won't default because they are going to tax their citiziens to pay for the bonds,
8. Californians love to pay taxes and will not take any action (like leave the state) so with this in mind plus US taxpayer guarantees, investors (like insolvent Citigroup) will buy the bonds,
9. And, just like Freddie, Fannie, GM, AIG, and so on, if this works out they will be back next quarter for more money because nothing is going to change in the short term to fix their underlying problems....

Your humble oracle blogger predicted this would happen back on October 26th, 2008.

What does all of this have to do with my long awaited treatise on why we will have a global currency to replace the US dollar? Here is a clue: It is not considered debt if you never plan to pay it back.

Secret Societies Are Your Friend

Blogs must be crisp and my posting on a global currency to displace the US Dollar is turning into a novel. Below is prelude to the full story. And, if it isn't true, it should be.

The following groups are working tirelessly on behalf of Europeans, Japanese, and those living in the Americas:

1. Bilderberg Group
2. Trilateral Commission
3. Council On Foreign Relations

Conspiracy theorists call these groups "secret societies" and assign to them all manner of frightening objectives including, but not limited to, enslaving the world. In fact, these groups are made up of the elite of the elite and the common person shouldn't flatter themselves to think this "Overclass" is the least bit interested in controlling the masses. They already have all the power and money. Their mission? - To Look Forward, Taking Action to Protect Our Way of Life.

By the middle of the 20th century, it became abundantly clear to small group of intelligent, experienced, rich and powerful people, that the elected, self-interested, self-absorbed leaders of the "free world" each seeking to advance themselves and act in their own country's self-interest would be incapable of maintaining our way of life. An Overclass that could effectively scenario plan the future and guide free world leaders without the appearance of "control" was needed. An thus, these 3 groups, many of which share members emerged.

With access to information, the power to control economic outcomes, broad minded independence coupled with uncanny abilities in scenario planning and "game theory", these groups effectively:

1. Halted the spread of Russian catalyzed Communism,
2. Prevented thermonuclear war,
3. Ensured ample supplies of money and cheap energy to generally advance society.

Point 3 is very important. Energy is nearly free-- even at $150 a barrel for oil! Could you image how much the last 60 years would have cost us if were to make all these technological and economic strides still using horses, oxen and steam power? Could you imagine how constrained our economies would be if we still based our currencies on some selected precious metal rather than using a debt based system that allowed for sustained, expansive growth?

No one country, no one person could have accomplished point 3. It required the Overclass, with a patient yet comprehensive blueprint, to guide the cacophony of nation states to get us where we are today.

As I said, if this story isn't true, it should be.

US Unemployment Reaches 16%

This statistic is largely under-reported but easily found at the US Bureau of Labor Statistics. Go here and access U6 to see the data. The point being, that the rise of the US Consumer requires confidence. And if you are marginally attached, discouraged, or under-employed you are less like to take consumer risk. Unless of course, you are borrowing just to survive. Then consumer risk becomes credit risk.

Chart was originally posted here. Click on graph to enlarge.

Easy Go; Easy Come

If you are an investor, how long before 2008 did it take for your investment holdings to double? It is something important to know because if you have lost 50% of your net portfolio in the last 12 to 15 months, you will need a 100% gain (or doubling) just to get back to where you were before this all began. Did it take 5 years to gain 100%? Eight? Ten? Twelve? Never?

Will you ever be as wealthy again as you were at the begining of 2008?

Here's some hope.

There are about 250 trading days in the New York stock market each year. International markets vary but they are all around 250 or so. If your current holdings simply increase 3/10 of 1 Percent (0.30%) every day for a year, you will double you money.

You're back baby!!!!

Does this give you hope? If so, then you need to read This posting from 2005.

A New Casualty From The AIG Scandal

On March 18th, I posted where the AIG money was really going and why the US government wanted everyone to focus on a few million in bonuses on NOT where the $30B in bailout money went:

Apparently, our "free press" was told not to report on where the money was really going because of fears of backlash by the American people. It is more important for the American people to mad at people on wall street and NOT be angry with their government.

Now it appears that a CNBC Host, Dylan Rattigan, broke ranks and started talking about the real AIG scandal. You can watch the events unfold here as he starts talking about the issue surprising the three guests who were there to talk about the DOW. Notice also that after a little discomfort, they admit that it is the "REAL UNTOLD STORY" and then you see them actually wanting to talk about the issue. Video is here:

http://economicedge.blogspot.com/2009/03/this-is-way-america-really-works.html


It seems the executive management of CNBC were outraged and forced the show to cut away to announce what is laughable "breaking news" that GOOGLE is going to layoff 200 people. It was reported that, during the cut away, Dylan Rattigan was fired and did not appear on the show he hosts in the evening called "Fast Money".

And as usual, news of his termination is now being "spun" so that everyone thinks that there are contract issues with Dylan and also sending out stories to discredit him as a professional and a human being.

So let me summarize:
(1) The AIG scandal concerning sending US taxpayer dollars to bailout EU banks was already public information, easy to locate and I was able to publish the details more than a week ago on this blog.

(2) There is nothing wrong with AIG sending money to the EU banks because after all it was a contractual obligation-- no laws broken as far as I can tell.

(3) But it looks bad. And that makes the US Government look bad. At a time when they want to look good. I feel sorry for them because all they have is their image. Because they have no business skills, they are ill-equiped to deal with the problem. Because they have no leadership abilities, they can't allow what must (and eventually will occur) which is a lot of pain for the American people [Deflation, Inflation, Currency Devaluation, Income Confiscation through higer taxes]. So they are taking advice from the very people who caused the problem in the first place.
(4) The "free press" is no longer free. They are being told what can and cannot be reported. And, if you do try to do some investigative reporting and don't clear it with your network executive, you will get fired. And your famiy won't eat. And as soon as we get government run healthcare in place, we will take away your healthcare if you don't do as we say.

I liked Dylan, I hope he goes to Bloomberg or Fox Businesses. I have been drifting from CNBC viewership for some time now... Now I won't watch them at all.

The Bulldog Returns

I've been blogging since 2004. The large gaps in my archive are due to the fact that I needed to take down much of the investment advice I was posting under the so called "Bulldog Report". So, breaking with tradition, I am going to post some stock picks. Before you read on please remember that any information that follows is neither a solicitation to buy or sell securities. The writer of this article may or may not own such securities at the time you are reading this article. And, don't be a complete idiot-- do your own research before you buy financial instruments of any kind.

Whew.... now with out of the way. I am working on 2 strategies both based on China. The reason these strategies exist is posted here.

STRATEGY 1: CHINA RECOVERY

DBB: ETF for aluminum, zinc and copper
FXI: ETF for top 25 Chinese companies
UDN: ETF for shorting the US Dollar.

STRATEGY 2: COMMODITY RECOVERY

USL: ETF for United States 12 month oil
DIG: ETF PROSHares ultra leveraged long term energy
ENY: ETF for Canadian Energy (stay away from US companies unless ultra leveraged)
GLD: ETF for Gold
EGO: Canadian Gold Mining Stock (probably best financial fundamentals of gold miners)
UND: ETF for shorting the US Dollar


Of the two, I like Strategy #2 the best, since OIL crossed its 50DMA this week. OIL should move to $60-65US by end of 2009 because China has locked up reserves in Russia and Venezuela using excess US dollars in the Central Bank of China (afterall they can't keep buying US treasuries with those dollars earned from imbalance of payments). This move, along with the fact that Mexico will be a net importer of oil in 2010, will move all other buyers to the spot market. Also, remember that China has been providing engineering and financial aid to Iran and Iraq as well as selected countries in Africa for mineral rights.

The only downside I see here could come from a decision by the US government to sell Alaska to the Chinese to pay down the US debt or provide temporary jobs to displaced US workers. Other than that, I think this is pretty sound.

US Taxpayers to bailout European Union

"Among European banks, SocGen was the biggest recipient at $11.9 billion, Deutsche got $11.8 billion and Barclays was paid $8.5 billion."

AIG massive payments to banks stoke bailout rage
REUTERS — 2:03 PM ET 03/16/09 By John O'Callaghan and Lilla Zuill



Translation: US Taxpayers just pushed $30B more into AIG to prop it up and AIG sent all of it to Europe. If that wasn't bad enough, US politicians and the US news media are focusing on the $165million in bonuses paid to AIG employees to distract the US Taxpayer from what is really going on.



"The call for "realistic" expectations is in stark contrast to the hopes of a "new global deal" at the G20 summit espoused by Gordon Brown, the Prime Minister, who will host the meeting on 2 April in London...Doubts surfaced over the likelihood of agreement after France and Germany spoke out against the co-ordinated fiscal stimulus that Mr Brown and the US President see as vital."

Darling plays down hope of G20 plan to save world economy
Published Date: 14 March 2009 By Gerri Peev



Translation: As long as the US government is willing to pull the train; the EU is willing to ride. And why not? Why should the EU risk inflation and currency devaluation when the US is so willing to print money and take on debt.

Beware the SECOND DERIVATIVE

When x and y are real variables, the derivative of f at x is the slope of the tangent line to the graph of f' at x. Because the source and target....yada, yada, yada....I got a D in calculus but A's in economics, finance, and psychology.

Which qualifies me to advise you to "Beware the purveyors of the second derivative". These are the people who tell you that they are seeing positive indicators in the economy. What are the measuring? They are measuring the change in the change.

And, you should know that even when the change in the change is positive, it can still be negative.

Class, Dismissed!

Why You Can't Make Money In the US Stock Market

Not Legal

If the caption of the photographer is correct, then in the United States this is illegal. If they are Police SWAT (Special Weapons and Tactics) or the National Guard then it is OK. However, calling out the National Guard for a minor domestic disturbance is at least troubling.



U.S. Army soldiers patrol the streets of Samson, Ala., after a man killed 11 people, including his mother, in a shooting rampage before turning the gun on himself on Tuesday afternoon. Photograph by: Mark Wallheiser, Reuters

http://www.vancouversun.com/news/dead+Alabama+shooting+spree+Police/1375074/story.html

Where is the AIG bailout money going?

I get this question alot and the answer is simple:

(1) AIG is an insurance company.
(2) Of the many things they insure, financial instruments is one of them.
(3) Banks hold financial instruments (like CDOs) and they want to protect their investment a little by buying insurance from AIG which basically means that the Banks will get their money if the CDOs default because AIG has insured them.
(4) The CDOs default.
(5) AIG needs to pay the banks the insurance.
(6) Lot's of defaults occur and AIG runs out of money.
(7) So.... the USG gives/lends AIG money (billions) but it only passes through AIG to the banks in the form of insurance payouts. It is just another way of channeling money to banks.

Once all the insurance policies are paid off there will be no need for AIG to exist as an insurer of financial instruments. AIG will be allowed to declare bankruptcy which means the USG won't get paid back all the billions they (you) lent them.