This time it’s different: Even though we eventually discover to our sad consternation that this time it’s never different, when it comes to a 1930’s type depression, the FED governors and our economists have us believing that this time it really will be different, because they have learned from the mistakes of the past or so they claim. Oh, if it were only so. There are two main reasons why history repeats. The first is simply because nobody bothers to study history; the second reason is that even if there were people who did take the time to study the past, most of recorded history is not all together factual as it is written in a politically correct fashion.
Take the NEW DEAL and Great Depression as perfect examples: As long as it is held as a truism that FDR and the New Deal halted the Depression and saved Capitalism from itself, we will definitely be making the same mistakes in the not to distant future as was made it the past. In case you have any doubts, go back and read my past missive on HISTORY REPEATS “The New Deal Debunked” and you will see that some of the mistakes of the past are already up before Congress. The first one is the Bill to eliminate the Secret Ballot when voting for Unions which is now in the process of being voted on: I am referring of course to. The tremendous increase in power given to the Unions in 1933 which ended up being one of the biggest job destruction programs in history. If we repeat that same mistake today, the out-sourcing that we have seen thus far will seem like a trickle when compared to the out-going tidal wave that will be forth coming.
ANTI BUSINESS ATTITUDES
Chevron, after a four-year battle with environmentalists,
gave up and dropped plans to build a $650 million liquefied natural gas (LNG) terminal
Instead of Congress investigating oil company’s excess profits and so called price gouging (no such thing in a free economy), which will not produce one additional ft/lb of energy; the government should be investigating why no new Refineries or LNG terminals or Nuclear power facilities have been built in the USA for more than 30 years.
Since the passage of Sarbanes Oxley, in a matter of less than two
years; for the first time in history the NYSE has lost its underwriting and
listing leadership to
.When it comes to small and medium sized businesses, Sarbanes is
making it almost cost and risk prohibitive to remain or go public; closing off
small businesses most important avenue for raising money. Up until now, it has
been the garage inventor’s ability to raise money for the most hair-brained
ideas that has kept the
PROPOSED NEW LAW -- AMERICANS WITH NO ABILITIES ACT (The person who sent the following assures me that this is not a Joke)
Finally, the AWNA ACT contains tough new measures to make it more
difficult to discriminate against the Non-abled,
banning discriminatory interview questions such as
"Do you have any goals for the future?" or
"Do you have any skills or experience which relate to this job?" As a
Non-abled person, I can't be expected to keep up with people who have something
going for them," said Mary Lou Gertz, who lost her position as a lug-nut
twister at the GM plant in
BETWEEN A ROCK AND A HARD PLACE
"The biggest potential danger to our economy isn't from a
slowdown in the
The Mortgage Bankers Association recently reported that sub-prime adjustable rate mortgage delinquencies reached 14.4% during the fourth quarter of 2006. while delinquencies in general reached 4.95%. Lenders, encouraged by both the Government and the FED, clearly did not consider the consequences of their exotic lending practices and neither did the investors who financed them.
While it is clear that “Greed” has overwhelmed financial institutions, investors and individuals wanting to own their own home, the real culprit was and is excess liquidity in conjunction with unrealistically low interest rates. The world is awash in fiat money and whenever that occurs, the result is always symptomatic gambling: When easy money is available for the asking, it is most often spent without regard to risk. Investors, banks and home buyers were all being paid, by the miracle of negative real interest rates, to "take advantage” of rising real estate prices and grab onto the American dream, while in reality they were merely gambling with cheap easy money.
Investment companies, awash in cash from expansionary monetary policies and the yen carry trade, needed to do something with all this money; so among other things they gobbled up mortgage backed securities as fast as they were created. Banks and specialty mortgage firms noticed this demand and obliged their insatiable appetite. The investment firms seemed not to care about the quality of the mortgages since they were trying to invest all that cheap money as fast as possible. Greed caused the lending institutions to lower their lending standards so that they could generate more and ever higher fees on sub-prime loans. Home buyers were overjoyed since many who could never have afforded to buy a house because of poor or no credit could now get in on the game with not only no money down, but with ultra low "teaser” interest rates and loans for up to 125% of the value of their homes, they were actually able were able to take money out when buying a new home. They were also suddenly able to furnish their new homes with no money down and with no payments for as long as two years. All this speculation in real estate, stocks, bonds, antiques, rare coins, art, etc. and last but far from least, the Take-over craze, can be traced directly back to "low interest easy Fiat money”.
Easy money is possible because all the money we have (other than gold) is fiat money and central banks are encouraged by their “Masters” to create more and more of it. It seems that there is very little comprehension of the nature and role of interest rates and money and the consequences of changes in money supply: Even Alan Greenspan admitted he does not know what money is or how to measure how much of it is around.
US Federal Reserve is managing the
The US Treasury used to have a website dedicated to publishing the US Public Debt. Now if you go to that website, you are re-directed instead to the website where you can buy US Treasury debt. Like M3, it is being taken out of the public eye. It seems that the game plan is to talk people into believing that prices will not rise and then, the theory goes, prices won't rise and the Fed can create all the money out of control spending politicians want. The strangest thing of all is that financial professionals and economists are falling for all this hog-wash.
The FED as well as the rest of the world is “caught between a rock and a hard place” because they have reached that inevitable point where “lowering interest rates” will not only no longer work, but will actually make matters worse, as the last of any logical investments become inflated to unrealistic heights, the only thing left to inflate will be consumer goods. Lowering interest rates now is tantamount to going on a weekend drinking binge, waking up on Monday with a huge hang-over and then expecting that by taking a few more drinks, you will then be ready to go to work. At today’s home prices and highly elevated lending requirements, lowering interest rates will not make overpriced houses any more affordable even if the lower classes were still able to get any mortgage at all, let alone with zero money down.
TWENTY YEARS of excess monetary creation, on average 7% above real growth rates, has produced a world-wide oversupply of capacity of just about everything, except food and commodities. The only thing left to do with all that excess liquidity is to over leverage and over pay for takeovers and privatizations, setting the stage for a great many good companies being forced to declare bankruptcy as the first signs of a recession hits and they can no longer meet their bloated interest payments.
Suck? Wow. When I heard those words, I nearly had a stroke; only because someone who surely knows the facts about the housing market finally had the nerve to tell the absolute truth. It was like the kid telling the emperor that he had no clothes. He also went on to say that excess inventory, built up during the boom cycle that saw housing construction reach all-time highs, is the biggest problem facing the sector. And judging from the state of the mortgage markets, that problematic glut is now going to be much harder to work off.
Last week, the
THE FED’S CONUNDRUM
For the last 20 years or so the FED has been able to use its liquidity hose to inflate the economy out of trouble; The ride was great while it lasted but like all good things this to must come to an end. Bad enough that the banks have finally started to re-introduce prudent lending standards, Congress led by Barney Frank is leading the charge to impose stricter lending standards, which like everything else congress does, will go to far and preclude qualified borrowers from obtaining mortgages and other types of loans. So what is the Conundrum? This time it really will be different. The FED will attempt to throw another party and lower interest rates but this time nobody will come because congress and the FED created too tight lending standards. But that will only be half the damage; lower interest will cause the dollar to crash and inflation to skyrocket . If on the other hand Bernanke see the danger and tries to defend the dollar the Stock and Bond markets will crash and that my friends is a real Conundrum.
GOLD and SILVER
fiat money across the globe is being created at a blistering pace, the
production of gold is slowing down. Last year, total mine production of gold
amounted to 2,467 tons. It has been estimated that the total amount of gold
ever mined is about 155,000 tons and essentially all this gold is still
available in some form or another. This "above ground” gold is the gold
equivalent of money supply and annual mine production can be considered as
inflation of the gold supply. Last year's gold inflation rate was 1.6%.
The price of gold over the medium to long term is determined by its inflation rate relative to that of the fiat currency you want to measure it against. With most fiat currency inflation rates running substantially higher than gold's inflation rate, it's easy to see why the gold price will continue to increase with some sharp corrections along the way but will continue to consistently increase over the long term. This is not about to change regardless of short term volatility. Continue to use any further weakness to accumulate and/or add to your positions.
With Gold global production and down and demand poised rise in this growing global economy, the gold miners, who are not foolish, fully understand the long-wave cyclical nature of the commodities markets and realize that this is not just a temporary problem. That is why we are such aggressive investment in exploration, mergers and acquisitions It will take many years for the gold mining industry to noticeably increase supply and gold producers and explorers will greatly capitalize on this trend in the very near future: And it is definitely not too late to capitalize on this gold bull. The producers are poised to lead the way as they ramp up their production and reserves, but they are not the only ones positioning themselves for success. Hundreds of gold companies are jockeying for investor attention and capital."
So far, gold, silver and the stock market have been behaving almost exactly as I have been expecting for over two years. Gold is in its final stages of its consolidation phase as it lays the ground work for it’s Wave III explosion. Its recent weakness was in no way due to the market’s overall sell-off; it was just doing its own thing, completing what will turn out to be a major jumping off point for the next explosive rally while the overall market completes its topping out process (if it has not already done so). Usually gold prices and the general market move in opposite directions and the coming (no later than May) market sell-off in conjunction with higher inflation should help fuel gold’s price explosion.
If you want more detailed explanations on how gold, silver and their respective stocks will perform in the near as well as the distant future, go back and re-read my past missives on the subject(s) you are interested in: I am more than prepared to stand on my past track record.
GOOD LUCK and GOD BLESS
Aubie Baltin CFA, CTA, CFP, PhD
The above information has been gleaned from information that I believe to be reliable but is not guaranteed by me. The information provided is strictly for educational purposes and is not meant to be used as investment recommendations.