Tuesday, January 18, 2011

The Twilight Zone, 2011

It's been a while since my last imparting. It's not that I've been uninterested it's that I've been traveling in another dimension, a dimension of not only of sight and sound but of mind. (I'm pretty sure that how Old Rod (OR) Serling said it in the late 1950s).

The sight is of continuing money creation out of nowhere at a level unimaginable even three years ago. The sight is also of the Federal Reserve being the largest buyer of the debt issued by the US Treasury with said created money. The government is buying what it's selling. Hmmm, somebody actually thinks this is a good idea.

The sound is of the Federal Reserve openly admitting that it is creating all this money to make the stock market go up so people will feel wealthier and spend more to buy things which will create a market for goods which will prompt businesses to produce more and so feel the need to hire more people. Who knew prosperity was that easy to achieve? Why didn't other people think of this before? In fact others have, lots of times.

I recently read about one such instance in When Money Dies by Adam Furgusson which details the events that occurred when Germany tried unrestrained money printing to help deal with the consequences of the reparations demanded of it following World War One. The mark soon became worthless. One trillion mark notes (Zimbabwe now has Z$100 trillion banknotes) were printed and distributed in 1923. One story told of an American tourist staying in a hotel in Berlin who had two suitcases full of 500,000 mark notes in his room. A burglar broke in, dumped the notes on the floor and stole the suitcases.

Inflation hit over 1000% per week. No one would accept cash for anything unless he knew of someone else who would immediately accept the cash for some good or service. Any good or service. Such people were very hard to find. This is the "mind" part of the opening paragraph. If the citizens don't have confidence in the currency they won't hold it and tumult follows.

During this time the German stock market went up nicely though not nearly enough to keep up with the plunge in purchasing power being experience by the German people. Gold in terms of marks skyrocketed. The victorious nations--France and Britain in particular--would only accept gold marks as payment and those were in short supply. One report had it that an ounce of gold could have bought a block of real estate in downtown Berlin in 1923.

All of this took a few years to evolve but when it hit things went to hell in a hurry. I fear a lesser but still dreadful reenactment of this will happen in the US unless by some miracle those in power begin to act very responsibly very quickly. This seem unlikely, to say the least, as they rightfully fear the pain involved would mean they'd be voted out of office and have to work for a living.

The December Consumer Price Index (CPI) showed a rise of 0.5% or 6.0% annually. That's a lot but not to worry as the core CPI was only 0.1% so unless you eat or drive there's no problem.

Oil has been around $90 a barrel for about a month and this is not usually a particularly strong seasonal time for oil prices. Summer driving season, if there is one this year, is the strong seasonal time and is five months away. If we start getting into triple digits all the talk of an economic rebound will be silenced. Then there's the fact that money to buy the oil largely goes to those who hate us and would like to see us destroyed. Still Obama won't drill in the Arctic or the Gulf of Mexico.

The prices of grains, meats, cotton and fertilizer are soaring as demand for these grow monthly and weather conditions in countries, except the US, that produce these have been abysmal. Also oil is needed to run the equipment used to plant and harvest the commodities just mentioned and to produce the fertilizer needed to grow them further adding to the price rises.

To conclude I'll just return to my refrain from past rants and say buy gold, silver and oil. Gold (current price $1367 versus $1229 as of my August posting) has been a store of value for five millenia and every time governments have strayed from its', or silver's, currency backing the results have been the same, economic chaos. To quote Voltaire: Paper currency eventually returns to its' intrinsic value, nothing. (See the 13th Rule of Life).

Silver (currently $28.80 versus $18.20 in August) is more affordable than gold and has industrial uses that gold doesn't have.

Oil (currently $91.38 versus $40 in August, yipe) will be essential and in diminishing supply for decades to come and so will be ever more valuable.

You will probably be a lot worse off in years to come but if you invest in gold, silver and oil you will be better off than most if that's any consolation. Oh yeah, buy some guns who knows how the masses will react if the above comes to pass.

WAD

Phlintheart Gloomgold. PhD.


Saturday, August 21, 2010

Footfalls Echo in the Memory

"Footfalls echo in the memory. Down the passage which we did not take. Towards the door we never opened. Into the rose garden." T. S. Elliott, 1888 to 1965.

A couple of trillion stimulus dollars later we're little better than we were before all that spending. The initial reading of second quarter GDP showed 2.4% growth. Big deal. Normally the reading this close to the bottom of a recession would be closer to 7%. The first revision to the second quarter number comes Friday the 27th. I say we'll be lucky to show 2% growth. Worse than the number, which will be revised a final time the end of September, is the trajectory. To quote Johnny Cash: Down, down, down and the flames got higher.

Uncle Ben (UB) is a renown student of the Great Depression. His conclusion regarding said Depression's lingering pain was that the Fed didn't throw enough money at the situation. He studied an event where the policies taken didn't work. He should have studied an event where the policies taken DID work.

The Panic of 1920 began every bit as badly as its' 1929 cousin but lasted only 18 months. There was a 17% plunge in GDP and unemployment jumped from 4% to 12%.

in 1920 Woodrow Wilson was President but was totally incapacitated by a stroke and so could do nothing. Basically his wife was President. Then Harding took over in March of 1921. His Commerce Secretary, Herbert Hoover, yup that guy, advised an array of government interventions to turn the economy around. Instead Harding cut the federal government's budget nearly in half between 1921 and 1922 and reduced taxes across the board. The Fed was a non-player. By August, 1921 signs of recovery were evident. In 1922 unemployment was back to 6.7% and by 1923 it was 2.4%. "Down the passage which we did not take."

So, We're All Doomed (WAD) but what can we do to be less doomed than the great mass of sufferers? First, pay down and get out of debt. (See the 4th Rule of Life). Second, as I keep saying, buy gold. A coin or two a month and more if you can afford it. Third avoid common stocks. By this I mean stocks such as IBM, Dupont, JP Morgan and the like. I do not mean Master Limited Partnerships (MLPs) like PAA, PWE and preferred stocks like MSJ. Also the high yield closed end funds from PIMCO could be a good bet. Have a gander at PHK, PKO and PFN to name three. These are risky but with Bill Gross and the boys minding them some faith is warranted. The groups I mentioned have hefty payouts and should offer somewhat of an umbrella in the scatological tempest we are entering.

Some are hopeful that a Republican takeover of one or both houses of Congress will turn things around. I disagree. Such a happening would stop anymore dimwitted ideas from becoming law but would not undo what has been done. For that we must wait for succeeding kings which means 2012 at the earliest. Yipe.

Gold's price at the time of my June 24 posting was $1242. By the time of my July 19 imparting it was down to $1181 and I said "not to worry". Gold is now $1229 so I hope you didn't worry. We're about to enter the months of the year when gold performs best. Have no idea where it will end up but strongly suspect it'll be a lot higher than $1229.

Get out of debt, buy gold, hunker down and cast scorn, in moderation, on those who voted for Obama. See 12th Rule of Life: Don't rush to attribute to malice what can be explained by stupidity.

WAD




Monday, July 19, 2010

The Opening of the Sixth Seal

"...hide us from the face of He who sitteth on the throne, and from the Wrath of the Lamb; for the great day of His wrath is come, and who shall be able to stand"? Revelation 6:16,7.

And the hits just keep on coming. A month ago Alan Abelson in Barron's reported the government has just "revised" its April consumer credit card numbers from an increase of $954.8 to a decrease of $15.4 billion! I'd add a lot more exclamation points but however many I typed in wouldn't be enough to convey how eyebrow raising, jaw dropping, breath stealing, coronary causing this "revision" is. The original number was corrected by 1,605%. How can anyone, even a government employee, with an IQ greater than a hat size be that far off? The good news, I suppose, is the latest number is probably off as well and possibly is better than reported. Keep a good thought.

Okay, next item of despair is that Janet Yellen has been nominated to be vice-chair of the Fed. Old Janet (OJ) has never met a dollar she didn't want to print and have spent. In the hearing to confirm her she said: "The Fed achieved price stability for a generation."

I thought a generation was 20 years but looked it up and Webster defines it as "the average length of time between the birth of parents and that of their offspring". These days that's probably closer to 30 years.

According to the National Automobile Dealers Association the average new car in 1980 was $7,250 and is now $28,400. More mundanely according to peoplehistory.com in 1980 1/2 gallon of milk was .85 and I see it's now $2.01. Then there's the price of housing, health care, insurance, gasoline, and on and on. OJ thinks that's price stability.

Then there is the Biblical size of our debt (the Sixth Seal Is opened). We have a national debt of $14 trillion and unfunded liabilities of $40 trillion. These demands are and will forever be impossible to meet. The US has to default. There are two ways it can do this. The first is to simply say we ain't paying, i.e., renege. No way. The second is to inflate wildly which is where OJ comes in. Between her and Uncle Ben (UB) the galaxy will be the limit, if that, when it comes to money creation out of thin air. We are in BIG TROUBLE.

Since my last imparting gold has dropped about $46. Current price $1181. Not to worry. The period between June 1 and August 31 has been erratic throughout the bull run in gold from 2002 to the present. Some years up, some down, some about even.

The period between September 1 and December 31 however is a different story. The average gain has been 13.4% with the biggest being 25%, in 2007, and the smallest 1.4% in 2006. The period between January 1, 2006 and May 31, 2006 saw gold rise from $513 to $625, 0r 22%, so the last seven months of that year were merely a period of rest and recovery.

We are being run and ruined by people who are at best ignorant and irresponsible and at worst actually trying to create a crisis "that is too good to waste", as Rahm Emanuel said two years ago, so they can claim the federal government must take over everything in order to save the country.

The 12th Rule of Life is: Don't rush to attribute to malice that which can be explained by stupidity. I am trying.

WAD








Thursday, June 24, 2010

Shun the Frumious Bandersnatch

"Beware the Jabberwock my son!
The jaws that bite, the claws that catch!
Beware the jubjub bird, and shun The Frumious Bandersnatch"
Lewis Carroll (Through the Looking Glass and What Alice Found There, 1872)

Barack Obama is The Frumious Bandersnatch. Bush and the Republican and then, in 2007, Democratic congress began a debt induced euphoria which ended badly in 2008. Obama, aka The Frumious Bandersnatch, has more than doubled that debt. It seems he expects doubling an already unsustainable burden to alleviate said burden. Hmmm.

At the time of my February posting gold was selling for around $1075. It's now $1242. Generally what's happened is a growing realization that the monstrous creation of and then spending of money by the forces of government has created few jobs and minimal economic vitality. What it has created is an elephantine and still growing deficit with no prospect of a rational idea coming forth about how to deal with all this.

Stock volume is now largely the product of high frequency trading actions which can trade tens of thousands of shares in nanoseconds. Swings of hundreds of Dow points in a single day are now commonplace. The various stock markets appear to be casinos rather than a way to invest in America's future. There seems to be no willingness by the majority in congress to do anything about this atrocity.

As a general rule, there are some exceptions, if you're not a rotten person, a feckless, self-serving, inferior individual when you enter politics your either become one or you get out. And the higher up you go the worse you're likely to be. For evidence of this simply watch the news.

So, what to do to protect yourself. Obviously you can vote the current crop of snollygosters (google the word) out and hope the new gaggle will do better until they too are corrupted then vote them out as well. Not a satisfactory answer but things are as they are.

In the meantime a positive step is to buy more gold and store it in your safety deposit box. Gold thrives when governments and central banks act irresponsibly and this current government and central bank is the most irresponsible in our history. It exceeds the Carter/Democratic congress/G. William Miller troika of the late 70s which heretofore seemed impossible to "surpass".

A second investment is oil in the form of the ETF "USO". This has its' drawbacks due to the fact it "rolls" the expiring front month future's contract on oil into subsequent month(s) so there are times when it doesn't reflect the day's oil price movement. Still over time it does pretty well in duplicating the price moves in the oil market.

Oil is getting more difficult and expensive to extract and the demand for it is growing. New oil discoveries cost somewhere around $70 to get out of the ground so it's unlikely for the price of oil to drop much below that for more than brief periods.

You get more leverage by buying, don't want to say "investing in" because I feel the stock market is a casino, oil companies but companies are often run by bozos (see BP), and are subject to political meddling, unforeseen events (see BP again) and general stock market fluctuations. When the market tanks most stocks are dumped no matter the underlying fundamentals because of program trading.

Last time I mentioned platinum, palladium and silver. Am less enamored with them now as they have industrial uses and I feel the global economy is in for extended problems. Platinum and palladium are about where they were in February. Silver's about 5% higher I presume because of it's relative cheapness compared to the other precious metals. The Dow is about 5% lower.

Interest rates keep dropping. The 10 year Treasury note is currently yielding 2.98%. Who would accept 2.98% return for 10 years? Someone who is petrified about what's going to be happening in the country/world for the next 10 years. The good news is our deficit is now being funded very cheaply. We'll see how long this lasts.

I could make an argument for treasury rates going even lower, a deflation resulting from the unwinding of waaaaay too much leverage, or screaming upward, so much future treasury issuance that much higher rates are needed to attract buyers.

Bottom line we are being governed by unfathomably incompetent political leaders and an academic Fed chairman who gambled that creating a trillion dollars by pushing a button would avoid a deep recession. For a time it looked as though it might. Now it looks like it won't. Worse still is all this new debt piled upon all that old debt and sluggish, at the very best, economy has combined to create the specter of a looming catastrophe. Our grandfathers learned all about this 80 years ago and now because we were too stupid to comprehend their lesson we are in the process of repeating the mistake. (See Rule of Life #3: Experience may or may not be the best teacher but it's almost always the most expensive.)

Buy a lot of gold, some oil, maybe some silver if that's all you can afford, vote out the snollygosters in November and wait for succeeding kings.

We're All Doomed (WAD)




Sunday, February 28, 2010

Ingot We Trust

Gold ingots that is.

The time has come to admit the obvious, namely Obama, Bernanke, Geithner, Reid, Pelosi et al cannot be trusted with preserving our purchasing power and general well-being. Their solution to health care, unemployment, a stagnant, at best, economy and all other social and economic ills is to push the button that creates trillions of dollars and has them magically appear on the federal government's balance sheet.

To date prices of everyday goods have not reflected this fiendishness so there is still time to attempt to protect yourself from the consequences of a clueless, at best, in over its' head leadership in Washington. Just as it was obvious to everyone over 11 years old that the Mike Tyson who was the scourge of the heavyweight boxing world in the mid to late 80s would self-destruct so it should be just as obvious that these unfathomable amounts of money being created out of nothing must have dreadful consequences.

My guess is that inflation will start to sprout in the next few years and then blossom into at least a late 70s/early 80s event. Possibly a whole lot worse. Before that there could be some deflation as most consumers decide that saving and paying down debts is far more desirable than buying some nice but unnecessary item and producers respond by cutting prices and laying off more employees. Bernanke will likely react to this by getting in his helicopter and scattering dollars about the countryside. The longer this "seeding" doesn't work the worse the consequences when it does finally work. Again, Mike Tyson.

My suggestion for protection from all this is to start a systematic gold purchasing program. Gold has been a store of value for 4500 years and until early in the last century had always been a form of money. It is still recognized by the International Monetary Fund as one of the three "currencies" that can be used by countries for reserves. The other two being the Euro and the dollar. Unlike those two gold cannot be printed.

If you are over 59 1/2 and therefore able to withdraw from your retirement program without tax consequence I would suggest taking enough out every month to buy at least a one ounce gold coin.

Taking money out of your retirement before hitting 70 1/2 and have to begin withdrawing is probably a good idea anyway. If your retirement account is hefty the hickey you take from certain higher tax rates and likely higher mandatory withdrawals could be unpleasant.

One ounce platinum Maple Leafs are a good substitute every few months. They are about $600 more a coin but platinum is a rarer metal and since it has industrial uses, catalytic converters and oil refining to name two, it gets used up. Gold much less so.

If it's several years before everything hits the fan you'll have at least a small treasure chest to somewhat protect you from the forces unleashed by a bungling government and central bank. If you are under 59 1/2 I suggest systematically buying GLD and PTM and PALL (palladium) and SLV in either your IRA or regular stock account.

Today the forces of evil are exalted. Tomorrow comes the Wrath of the Lamb.

We're All Doomed (WAD)


Saturday, February 27, 2010

Rules of Life

#1--There's a downside to being a dummy.
#2--Never get yourself into anything that will take a legal proceeding to get you out of.
#3--Experience may or may not be the best teacher but it's almost always the most expensive.
#4--Spend less than you earn--debt is bondage.
#5--If you have to say you is, you ain't. (Satchel Paige)
#6--Never commit adultery with anyone under 40 and then make certain the other person has at least as much, preferably more, to lose than you.
#7--Three people can keep a secret if two of them are dead. (Ben Franklin)
#8--The amount of grief you get is roughly equivalent to the amount you are willing to take.
#9--There's a lot to be said for not saying a lot.
#10--Don't bitch about what you can't do anything about.
11--Don't use your position of power or authority as a license to act unreasonably.
12--Don't rush to attribute to malice what can be explained by stupidity. (Heinlein's Razor)
#13-Buy gold--"Paper currency eventually returns to its intrinsic value--nothing." Volaire