Governor Schwarzenegger is begging the Obama Admistration for $21 billion dollars in relief to offset the state's looming budget shortfall. Nearly all of the solutions which the Governor could take have already been enacted.
The legislature and the Governor remain at odds. They are heavily weighted with Democrats who oppose further budget cuts. Governor Schwarzenneger is a Republican and is adamantly opposed to further tax hikes! YIKES!
But there are opportunites to preclude this mess. First off is the 2010 election, which is likely to change the political mix in its entirety. We must, as voters, facilitate a change in the form of governance through the ballot box. After all, it was the utter stupidity of voters in approving a variety of ridiculous measures in the first place!
Under current policies, even a relatively small cadre of the minority party can thwart any changes.
Preschool programs, after-school programs, a stem-cell program, new prisons, new bond issues and borrowing to balance the budget were ALL approved at the same time! Sure, they may be worthy causes, but come on! At the time, these very same voters gave the "thumbs up" to a special-interest tax break. HELLO???
One proposal that is "ready to go" institutes open primaries, allowing the top two candidates of either party to run in the general election. Hopefully, this will "put the brakes" on the current extremism existing today.
If you believe this to be confusing, join the club!
Tomorrow, I'll cover a lighter note, in honor of the upcoming Super Bowl. I'll "tackle" the worsening situation taking place in major league sports.
HAPPY NEW YEAR!
Marko's Take
Thursday, December 31, 2009
Wednesday, December 30, 2009
Are We In An Economic Recovery or Not?
Christmas sales are finally in, so we can gauge the nature as to whether a bona fide recovery is indeed taking place. Of course, there is bad news and good news.
The bad news is that the so-called recovery is much weaker than originally reported. Third quarter GDP or Gross Domestic Product was first reported at 3.5%. It has since been revised downward twice to 2.2%.
Of course, the revisions are courtesy of the Bureau of Labor and Statistics, an entity known for "juicing" the real numbers. If you follow Shadowstats.com you get an entirely different picture. According to them, GDP currently is tracking at MINUS 3%!
According to Reuters, online spending ROSE 5% from the beginining of November through December Activity tracked by SpendingPulse, a unit of MasterCard Advisors, showed retail sales ROSE 3.6 % in the period from November 1 through Christmas Eve on December 24.
The Wall St. Journal has weighed in on home sales. The Case-Shiller index of home prices for 20 cities increased a seasonally adjusted 0.4% from September, the fifth consecutive monthly increase. Before the seasonal adjustment, the index was unchanged. Home prices are 7.3% lower than a year ago..
Furthermore, the situation for mortgage redefaults has improved. Some 18.7% of loans modified in the second quarter of 2009 were at least 60 days past due three months later, according to the report, by the Office of Comptroller of the Currency and the Office of Thrift Supervision. That compares with a redefault rate of 30% or more after three months for loans modified in the previous four quarters.
"Net net" it's still impossible to formulate a definitive conclusion. What we do know for now is that some signs of recovery are present. Yet, we still don't know to what extent. As Confuscious once said "I'm confused"!
If you think you know the answer to the question at hand, PLEASE hit me with your best shot. Fire away!
There is a comment section below in case my constant repetition of the existence of such a section somehow escaped you!
Tomorrow we'll return to another "California Crisis Deepens Series"
Marko's Take
The bad news is that the so-called recovery is much weaker than originally reported. Third quarter GDP or Gross Domestic Product was first reported at 3.5%. It has since been revised downward twice to 2.2%.
Of course, the revisions are courtesy of the Bureau of Labor and Statistics, an entity known for "juicing" the real numbers. If you follow Shadowstats.com you get an entirely different picture. According to them, GDP currently is tracking at MINUS 3%!
According to Reuters, online spending ROSE 5% from the beginining of November through December Activity tracked by SpendingPulse, a unit of MasterCard Advisors, showed retail sales ROSE 3.6 % in the period from November 1 through Christmas Eve on December 24.
The Wall St. Journal has weighed in on home sales. The Case-Shiller index of home prices for 20 cities increased a seasonally adjusted 0.4% from September, the fifth consecutive monthly increase. Before the seasonal adjustment, the index was unchanged. Home prices are 7.3% lower than a year ago..
Furthermore, the situation for mortgage redefaults has improved. Some 18.7% of loans modified in the second quarter of 2009 were at least 60 days past due three months later, according to the report, by the Office of Comptroller of the Currency and the Office of Thrift Supervision. That compares with a redefault rate of 30% or more after three months for loans modified in the previous four quarters.
"Net net" it's still impossible to formulate a definitive conclusion. What we do know for now is that some signs of recovery are present. Yet, we still don't know to what extent. As Confuscious once said "I'm confused"!
If you think you know the answer to the question at hand, PLEASE hit me with your best shot. Fire away!
There is a comment section below in case my constant repetition of the existence of such a section somehow escaped you!
Tomorrow we'll return to another "California Crisis Deepens Series"
Marko's Take
Tuesday, December 29, 2009
A Very Simple Trading Strategy For Gold: Version 2.0
Regular readers may recall two blogs I recently wrote: "A Very Simple Way To Trade The Very Tricky Gold Market (http://markostake.blogspot.com/2009/12/safe-way-to-trade-tricky-gold-market.html-to-t) and "Tips On Grabbing Higher Yields" (http://markostake.blogspot.com/2009/12/tips-on-grabbing-higher-yields.html).
I now wish to combine these approaches for an ever BETTER result. As you may recall from the Trading piece, I suggested a methodical approach to protect your profits while still retaining a substantial exposure to Gold. In the other piece, I suggested some risk-free approaches to earning higher yields than the paltry ones available today.
So, here's how the two combine: As you lay off your exposure to Gold via GDXJ, purchase the ETF whose trading symbol is "TIP". That way, you'll begin building a yield generating instrument in your portfolio! Keep repeating the process and you'll enhance your Gold exposure with income! Done correctly, you can not only realize tremendous riches from the Gold, but simultaneously create passive income of substantial size. It might even rise so high as to provide you with a bona-fide SALARY!!
So, once this process is completed, you might be able to retire!
Ideally, this should be done within the confines of an IRA, but as Archie Bunker would say "que seru seru"!
Now, how can you possibly beat them apples?
Tomorrow, I intend to revisit the prospects and liklihood for economic recovery since Christmas sales have now been reported.
Unless you wish to torture me with your deafening silence, "Take Me On" in the comments section below.
Marko's Take
I now wish to combine these approaches for an ever BETTER result. As you may recall from the Trading piece, I suggested a methodical approach to protect your profits while still retaining a substantial exposure to Gold. In the other piece, I suggested some risk-free approaches to earning higher yields than the paltry ones available today.
So, here's how the two combine: As you lay off your exposure to Gold via GDXJ, purchase the ETF whose trading symbol is "TIP". That way, you'll begin building a yield generating instrument in your portfolio! Keep repeating the process and you'll enhance your Gold exposure with income! Done correctly, you can not only realize tremendous riches from the Gold, but simultaneously create passive income of substantial size. It might even rise so high as to provide you with a bona-fide SALARY!!
So, once this process is completed, you might be able to retire!
Ideally, this should be done within the confines of an IRA, but as Archie Bunker would say "que seru seru"!
Now, how can you possibly beat them apples?
Tomorrow, I intend to revisit the prospects and liklihood for economic recovery since Christmas sales have now been reported.
Unless you wish to torture me with your deafening silence, "Take Me On" in the comments section below.
Marko's Take
Monday, December 28, 2009
Obamacare... Part 3: The Economic Reality
Former Senator Phil Gramm said it best: "You can't give someone something for nothing unless you give someone nothing for something". And so it is with the notion of universal health care.
First, lets look at what the Obama Administration's own Congressional Budget Office (CBO) projects. Beginning with passage and continuing through 2019, the additional fees are virtually offset by the benefits, resulting in a picture perfect pay-as-you-go outcome.
However, the CBO is notorious for its bias in matters of projecting finances, be it spending, deficits or anything else. As an arm of the administration, it is a virtual certainty that some sort of accounting shenanigans have been played in order to "sell" the program to the 60 Senators who extorted the Admistration for various favors in exchage for their YES votes.
According to a recent article in the Wall Street Journal, the plan's most tangible efforts to restrain medical costs occur via restrictions on specialist physicians. Congress will constrain these doctors from employing various "costly" procedures which it has deemed wasteful. But who are we to argue with Congress? They must be right since so many of them are doctors and have NO intention of participating in the plan!
The Senate bill gives the Centers for Medicare and Medicaid Services the unilateral right to dictate the price and use of medical devices. The Obama administration has attempted to usurp these powers via the court system and LOST (Hays vs Sebelius)!
Furthermore, the Senate bill specifically denies patients the right to sue! Private providers, on the other hand, are held to an entirely different standard.
If for some reason you wish to review the entire plan, you can do so by clicking on the following link http://thomas.loc.gov/. Or, for general information about health reform, http://voices.washingtonpost.com/ezra-klein/health_reform/.
So, whether you find my little diatribe brilliant or idiotic, I DOUBLE-DARE you to "Take Me On" in the comments section below. Tomorrow, we'll revisit Gold.
Marko's Take
First, lets look at what the Obama Administration's own Congressional Budget Office (CBO) projects. Beginning with passage and continuing through 2019, the additional fees are virtually offset by the benefits, resulting in a picture perfect pay-as-you-go outcome.
However, the CBO is notorious for its bias in matters of projecting finances, be it spending, deficits or anything else. As an arm of the administration, it is a virtual certainty that some sort of accounting shenanigans have been played in order to "sell" the program to the 60 Senators who extorted the Admistration for various favors in exchage for their YES votes.
According to a recent article in the Wall Street Journal, the plan's most tangible efforts to restrain medical costs occur via restrictions on specialist physicians. Congress will constrain these doctors from employing various "costly" procedures which it has deemed wasteful. But who are we to argue with Congress? They must be right since so many of them are doctors and have NO intention of participating in the plan!
The Senate bill gives the Centers for Medicare and Medicaid Services the unilateral right to dictate the price and use of medical devices. The Obama administration has attempted to usurp these powers via the court system and LOST (Hays vs Sebelius)!
Furthermore, the Senate bill specifically denies patients the right to sue! Private providers, on the other hand, are held to an entirely different standard.
If for some reason you wish to review the entire plan, you can do so by clicking on the following link http://thomas.loc.gov/. Or, for general information about health reform, http://voices.washingtonpost.com/ezra-klein/health_reform/.
So, whether you find my little diatribe brilliant or idiotic, I DOUBLE-DARE you to "Take Me On" in the comments section below. Tomorrow, we'll revisit Gold.
Marko's Take
Sunday, December 27, 2009
Obamacare... Part 2: When The U.S. Gets Involved In Medicine
By now you're sick of hearing the words "swine flu". But, unless you're old enough, you may not realize that a form of swine flu threatened the world in 1976 in the last year of the Ford Administration. That swine flu first showed up in February of that year, when Private David Lewis at Fort Dix died of a form of severe influenza not seen since the plague of 1918-19. That plague took 500,000 American lives and 20 million people worldwide.
Within two weeks, an additional 500 soldiers had been stricken with swine flu, although none of them died. However, officials realized that any flu capable of spreading so quickly had the makings of a bona-fide pandemic. Pvt. Lewis was the ONLY person to actually die from swine flu in 1976, but the quickly developed vaccination killed HUNDREDS of Americans, despite a cost of $135 million.
To be fair to President Ford, he was in a no-win situation. Had he NOT acted he would surely have been held accountable for any mass deaths. By the end of the year, the vaccine had been administered to 220 million Americans. As Jimmy Carter assumed the Presidency, reports began to surface of the vaccination's many side effects, including neurological problems.
Joseph Califano, one of the earliest to use the word "fiasco" in describing the swine flu situation, later came to the conclusion that it was unavoidable. Califano, who President Carter appointed Secretary of Health, Education and Welfare, admitted that the doctors had no choice but to err on the side of caution.
Since the 1976 caper, things have become much more complex. The Obamacare bill itself is approximately 2000 pages and was written in 17 days! Senator Harry Reid himself has added an ADDITIONAL 383 pages to an already bloated bill loaded with pork for EVERY Senator voting for it. One example is $100 million for Senator Chris Dodd's favorite hospital.
According to the Bureau of Labor and Statistics, healthcare provided 14.3 million jobs in 2008 and 10 of the largest 20 occupations are healthcare related. It's expected to generate an additional 3.2 million jobs between 2008 and 2010, more than any other industry, primarily the result of an increasingly elderly population.
So, now we know that our government's experience with healthcare is poor and the industry is huge and getting bigger. We know that Obamacare is massive, incomprehensible to virtually anyone and loaded with pork in order to get the 60 Senate votes.
The whole situation reminds me of a great commercial decrying drug abuse: This is your head (looking at a raw egg). This is your head on drugs (looking at the eggs being scrambled in a frying pan). Any questions?
I'll cover some of the economics of Obamacare tomorrow. Please "Take Me On" in the Comments section below.
Marko's Take
Within two weeks, an additional 500 soldiers had been stricken with swine flu, although none of them died. However, officials realized that any flu capable of spreading so quickly had the makings of a bona-fide pandemic. Pvt. Lewis was the ONLY person to actually die from swine flu in 1976, but the quickly developed vaccination killed HUNDREDS of Americans, despite a cost of $135 million.
To be fair to President Ford, he was in a no-win situation. Had he NOT acted he would surely have been held accountable for any mass deaths. By the end of the year, the vaccine had been administered to 220 million Americans. As Jimmy Carter assumed the Presidency, reports began to surface of the vaccination's many side effects, including neurological problems.
Joseph Califano, one of the earliest to use the word "fiasco" in describing the swine flu situation, later came to the conclusion that it was unavoidable. Califano, who President Carter appointed Secretary of Health, Education and Welfare, admitted that the doctors had no choice but to err on the side of caution.
Since the 1976 caper, things have become much more complex. The Obamacare bill itself is approximately 2000 pages and was written in 17 days! Senator Harry Reid himself has added an ADDITIONAL 383 pages to an already bloated bill loaded with pork for EVERY Senator voting for it. One example is $100 million for Senator Chris Dodd's favorite hospital.
According to the Bureau of Labor and Statistics, healthcare provided 14.3 million jobs in 2008 and 10 of the largest 20 occupations are healthcare related. It's expected to generate an additional 3.2 million jobs between 2008 and 2010, more than any other industry, primarily the result of an increasingly elderly population.
So, now we know that our government's experience with healthcare is poor and the industry is huge and getting bigger. We know that Obamacare is massive, incomprehensible to virtually anyone and loaded with pork in order to get the 60 Senate votes.
The whole situation reminds me of a great commercial decrying drug abuse: This is your head (looking at a raw egg). This is your head on drugs (looking at the eggs being scrambled in a frying pan). Any questions?
I'll cover some of the economics of Obamacare tomorrow. Please "Take Me On" in the Comments section below.
Marko's Take
Saturday, December 26, 2009
Obamacare... Part 1: Who's Fer It, Who's Agin' It?
The Senate version of Obamacare passed on Christmas Eve by a 60-39 vote, completely along party lines. Thank God, President Obama has managed to UNITE the country as he promised while campaigning! Ninety-two year old Democratic Senator Robert Byrd, (presumably along with his dog, Billy), had to be wheeled in to vote, while Republican Senator Jim Bunning of Kentucky refused to vote at all!
Proponents will be easier to enumerate, so let's start there first. They include the administration and the 60 Democrats in the Senate. And, of course, most of the House of Representatives, led by Nancy Pelosi. This is, of course, PREPOSTEROUS, since NONE of the provisions of Obamacare will apply to any of them!
As to the opponents, the list gets a bit more extensive. Among the nays include the American People, who, according to the most recent Rasmussen poll, oppose Obamacare by 55%, with only 41% in favor. This poll was conducted less than a week ago. Therefore, Obamacare should prove VERY UNHEALTHY for Democrats seeking re-election in 2010!
Other opponents include Big Pharma and the AARP. Big Labor opposes Obamacare, too, because of the 40% excise tax it levies on so called "Cadillac Plans", the portion of existing health-care plans that are very lavish, such as the ones enjoyed by many unions and Congress. Oh yes, that excise tax applies to everyone BUT CONGRESS!
On the 23rd of December, one congressman, Democrat Parker Griffith of Alabama, switched parties BECAUSE of his opposition to Obamacare. Prior to running for Congress, Griffith was an oncologist. He opposes the bill because of the impact on doctors and quality of patient care. But what does he know. It's not like he was a doctor! Republican's haven't held this seat since the Civil War!
Before the bill is enacted, it must be first reconciled between the House and Senate versions, which is expected to take place in February.
Now that we know how the sides line up, we'll continue tomorrow with another aspect of Obamacare.
I hope you had a Merry Christmas. I did. "Take me on" with any comments below.
Marko's Take
Proponents will be easier to enumerate, so let's start there first. They include the administration and the 60 Democrats in the Senate. And, of course, most of the House of Representatives, led by Nancy Pelosi. This is, of course, PREPOSTEROUS, since NONE of the provisions of Obamacare will apply to any of them!
As to the opponents, the list gets a bit more extensive. Among the nays include the American People, who, according to the most recent Rasmussen poll, oppose Obamacare by 55%, with only 41% in favor. This poll was conducted less than a week ago. Therefore, Obamacare should prove VERY UNHEALTHY for Democrats seeking re-election in 2010!
Other opponents include Big Pharma and the AARP. Big Labor opposes Obamacare, too, because of the 40% excise tax it levies on so called "Cadillac Plans", the portion of existing health-care plans that are very lavish, such as the ones enjoyed by many unions and Congress. Oh yes, that excise tax applies to everyone BUT CONGRESS!
On the 23rd of December, one congressman, Democrat Parker Griffith of Alabama, switched parties BECAUSE of his opposition to Obamacare. Prior to running for Congress, Griffith was an oncologist. He opposes the bill because of the impact on doctors and quality of patient care. But what does he know. It's not like he was a doctor! Republican's haven't held this seat since the Civil War!
Before the bill is enacted, it must be first reconciled between the House and Senate versions, which is expected to take place in February.
Now that we know how the sides line up, we'll continue tomorrow with another aspect of Obamacare.
I hope you had a Merry Christmas. I did. "Take me on" with any comments below.
Marko's Take
Thursday, December 24, 2009
A Golden Opportunity
It appears that the ultimate low for Gold in this cycle has finally arrived. Two days ago, Gold briefly touched the $1075 level. If you sold at or before that point I believe you can now safely re-enter.
The most widely followed index of Gold and Silver mining stocks, HUI, also touched bottom on Tuesday after a slide of nearly 20%. I may have been wrong as to the ultimate bottom, but I do recall having mentioned that one must be prepared for a wild and woolly ride!
Therefore, IF you are out, it's time to jump back in! I would enter or re-enter immediately.
As to where Gold is headed in the near term, I have one word for you. UP! As I've said in previous updates, the form of the move is quite uncertain, however, we can handicap the possibilities.
Because of the utter shellacking Gold has taken over the prior 2 weeks, it is entirely possible that Gold will slingshot up like a rocket without looking back, but I tend to doubt that will happen. What I do expect is some form of pattern that will be characterized by a series of higher lows, prior to the yellow metal's final maniacal move to all-time highs.
The recent assault in Gold has been a thing of beauty. It has had the necessary impact of scaring the wits out of nearly everyone! The reason that's important is that too many people had been piling in. Now, they've run for the hills. Eventually, those folks will realize the error of their ways and re-invest. Mark Hulbert, who writes about such things, notes that the situation is quite conducive to a rally (http://www.marketwatch.com/story/sentiment-picture-rapidly-improving-for-gold-2009-12-23?reflink=MW_news_stmp).
If you are in the market for newsletters, there is none finer than Bill Murphy's LeMetropole Cafe. As far as I can tell, the man never sleeps (http://www.lemetropolecafe.com/)! In addition to publishing daily, he DOES read Marko's Take. Ignorance of this blog is a fatal flaw of every other newsletter!
Since tomorrow is Christmas, I'll spare you my drivel for ONE DAY. I will resume my assault on your mental faculties immediately thereafter.
"Take me on" in the comments section below.
Merry Christmas!
Marko's Take
P.S. I intend to cover the topic of Obamacare on the 26th! Wish me luck!
The most widely followed index of Gold and Silver mining stocks, HUI, also touched bottom on Tuesday after a slide of nearly 20%. I may have been wrong as to the ultimate bottom, but I do recall having mentioned that one must be prepared for a wild and woolly ride!
Therefore, IF you are out, it's time to jump back in! I would enter or re-enter immediately.
As to where Gold is headed in the near term, I have one word for you. UP! As I've said in previous updates, the form of the move is quite uncertain, however, we can handicap the possibilities.
Because of the utter shellacking Gold has taken over the prior 2 weeks, it is entirely possible that Gold will slingshot up like a rocket without looking back, but I tend to doubt that will happen. What I do expect is some form of pattern that will be characterized by a series of higher lows, prior to the yellow metal's final maniacal move to all-time highs.
The recent assault in Gold has been a thing of beauty. It has had the necessary impact of scaring the wits out of nearly everyone! The reason that's important is that too many people had been piling in. Now, they've run for the hills. Eventually, those folks will realize the error of their ways and re-invest. Mark Hulbert, who writes about such things, notes that the situation is quite conducive to a rally (http://www.marketwatch.com/story/sentiment-picture-rapidly-improving-for-gold-2009-12-23?reflink=MW_news_stmp).
If you are in the market for newsletters, there is none finer than Bill Murphy's LeMetropole Cafe. As far as I can tell, the man never sleeps (http://www.lemetropolecafe.com/)! In addition to publishing daily, he DOES read Marko's Take. Ignorance of this blog is a fatal flaw of every other newsletter!
Since tomorrow is Christmas, I'll spare you my drivel for ONE DAY. I will resume my assault on your mental faculties immediately thereafter.
"Take me on" in the comments section below.
Merry Christmas!
Marko's Take
P.S. I intend to cover the topic of Obamacare on the 26th! Wish me luck!
Wednesday, December 23, 2009
War With Iran Imminent?
Unfortunately, it would appear to be. At least according to measures passed in the House of Representatives and various foreign intelligence agencies.
Last week, the House overwhelmingly approved a measure to put in place further sanctions on Iran. Should this bill pass the Senate, the U.S. will no longer do business with any country engaged in either selling refined petroleum products to Iran or helping them with their ability to refine oil. While this motion was passed as a means of AVOIDING war, the most likely outcome will be to TRIGGER a war.
Sanctions are already a form of war, although non-violent. They unfortunately reveal a certain level of hypocrisy by a country that preaches the virtues of free trade: The U.S.
Let's say all of this happened to us. Wouldn't we take such actions as a virtual declaration of war?
We would not tolerate covert operations designed to foment regime change. The U.S. has been doing this in Iran for years.
Most alarming is the probability that should war occur, it would be nuclear.
According to a top Pentagon official, an upcoming U.S. missile defense system drill would simulate an Iranian attack - a departure from similar drills aimed at thwarting an attack from North Korea.
According to Lt. General Patrick O'Reilly, an Iranian attack would be more problematic than one from North Korea because a missile fired from Iran COULD reach the U.S., whereas a Korean missile would likely land on themselves!
The test is scheduled for January and will cost $150 million. During the maneuver, the U.S. will fire an interceptor missile from Vandenberg Air Force Base in California at a mock Iranian missile fired from the Marshall Islands.
Iran has been testing a "neutron initiator", a key element in producing nuclear weapons. A neutron initiator has absolutely no civilian purpose. Last Sunday, The British Times claimed it had obtained confidential documents from "Asian intelligence agencies" that the nuclear device had been recently enabled. The intelligence reveals that the initiator has been undergoing development since 2007.
Thus, it would seem that all sides have given up on a diplomatic solution. I pray neither country acts.
"Take me on" in the comments section below.
Marko's Take
Last week, the House overwhelmingly approved a measure to put in place further sanctions on Iran. Should this bill pass the Senate, the U.S. will no longer do business with any country engaged in either selling refined petroleum products to Iran or helping them with their ability to refine oil. While this motion was passed as a means of AVOIDING war, the most likely outcome will be to TRIGGER a war.
Sanctions are already a form of war, although non-violent. They unfortunately reveal a certain level of hypocrisy by a country that preaches the virtues of free trade: The U.S.
Let's say all of this happened to us. Wouldn't we take such actions as a virtual declaration of war?
We would not tolerate covert operations designed to foment regime change. The U.S. has been doing this in Iran for years.
Most alarming is the probability that should war occur, it would be nuclear.
According to a top Pentagon official, an upcoming U.S. missile defense system drill would simulate an Iranian attack - a departure from similar drills aimed at thwarting an attack from North Korea.
According to Lt. General Patrick O'Reilly, an Iranian attack would be more problematic than one from North Korea because a missile fired from Iran COULD reach the U.S., whereas a Korean missile would likely land on themselves!
The test is scheduled for January and will cost $150 million. During the maneuver, the U.S. will fire an interceptor missile from Vandenberg Air Force Base in California at a mock Iranian missile fired from the Marshall Islands.
Iran has been testing a "neutron initiator", a key element in producing nuclear weapons. A neutron initiator has absolutely no civilian purpose. Last Sunday, The British Times claimed it had obtained confidential documents from "Asian intelligence agencies" that the nuclear device had been recently enabled. The intelligence reveals that the initiator has been undergoing development since 2007.
Thus, it would seem that all sides have given up on a diplomatic solution. I pray neither country acts.
"Take me on" in the comments section below.
Marko's Take
Tuesday, December 22, 2009
Bank Failures Continue Unabated
On Friday, an additional 7 banks were seized by the FDIC, bringing the year's total to 140. As usual, the bank closures occured after closing on Friday and the re-openings were orchestrated such that they could appear unscathed by Monday morning. God knows, we mustn't see anything like a "bank line" ala the Great Depression! That just might give the impression that the country was in some kind of trouble, which as we well know, it isn't. Right?!
The FDIC, which insures deposits at the failed banks, is finding it increasingly difficult to find buyers. In the case of last Friday's closures, 3 of the 7 have yet to be bought. Prior policy had been to arrange a buying bank and to enter into a "loss-share transaction" over the weekend. The FDIC was forced to assume $1.9 billion of failed bank assets for future disposition. As of September 30th, the amount held for future disposition had been a staggering $30 billion!
The 7 failed institutions had combined assets of $14.4 billion and $11.2 billion in deposits. The estimated loss to the FDIC Deposit Insurance Fund, i.e. US as taxpayers, was a "mere" $1.8 billion. At least we're not talking about "real" money!
The 7 closures included 2 in California: First Federal Bank and Imperial Capital Bank. The other 5 were located in Florida, Michigan, Illinois, Alabama and Georgia.
As we've been told time and time again, our banks and entire financial system, for that matter, are safe! Just tell that to the FDIC, which is running in the red and holding a large quantity of assets.
What do YOU think of our banking system? If you're getting nervous, I wouldn't blame you. I welcome you to "Take Me On" in the comments section below.
Marko's Take
P.S. 3rd Quarter GDP was just revised downward for the SECOND time to 2.2%. It had been originally estimated at 3.5%. Yup, everything in the economy is going swimmingly well!
The FDIC, which insures deposits at the failed banks, is finding it increasingly difficult to find buyers. In the case of last Friday's closures, 3 of the 7 have yet to be bought. Prior policy had been to arrange a buying bank and to enter into a "loss-share transaction" over the weekend. The FDIC was forced to assume $1.9 billion of failed bank assets for future disposition. As of September 30th, the amount held for future disposition had been a staggering $30 billion!
The 7 failed institutions had combined assets of $14.4 billion and $11.2 billion in deposits. The estimated loss to the FDIC Deposit Insurance Fund, i.e. US as taxpayers, was a "mere" $1.8 billion. At least we're not talking about "real" money!
The 7 closures included 2 in California: First Federal Bank and Imperial Capital Bank. The other 5 were located in Florida, Michigan, Illinois, Alabama and Georgia.
As we've been told time and time again, our banks and entire financial system, for that matter, are safe! Just tell that to the FDIC, which is running in the red and holding a large quantity of assets.
What do YOU think of our banking system? If you're getting nervous, I wouldn't blame you. I welcome you to "Take Me On" in the comments section below.
Marko's Take
P.S. 3rd Quarter GDP was just revised downward for the SECOND time to 2.2%. It had been originally estimated at 3.5%. Yup, everything in the economy is going swimmingly well!
Monday, December 21, 2009
There IS A Law Requiring The Payment Of Federal Income Taxes, Right?
NO! In fact, no such law exists! REALLY!
America: Freedom to Fascism - Director's Authorized Version, a documentary produced by the late, great Aaron Russo, is a definitive piece on the topic. I had the honor of knowing Aaron personally in his final months of life, before he succumbed to cancer in 2007.
The information in today's blog is excerpted directly from that documentary, which you may view in its entirety merely by clicking the link above.
As early as 1894, The Supreme Court of the United States ruled that the power to tax wages was unconstitutional. However, Congress later passed the 16th ammendment in 1913 in order to impose a bona-fide income tax. At that time, President Woodrow Wilson said "I am a most unhappy man. I have unwittingly ruined a nation. America is now controlled by its system of credit". By system of credit, he was referring to the accompanying establishment of the Federal Reserve.
The 16th Ammendment conferred NO new powers of taxation and was NOT ratified by the states.
Furthermore, the U.S. Constitution specifies that ANY direct tax must be "apportioned", meaning divided equally among all people. As you know, the personal income tax is NOT.
But aren't income taxes vital to provide essential services? NO!
Education is paid for by property taxes. Highways are paid for by the various taxes on gasoline. Defense was paid for by CORPORATE taxes, which are entirely legal. However, Defense expenditures have ballooned to such an extent, that even corporate taxes in their entirety are not, at this time, sufficient.
As recently as 2005, legal Corporate taxes were $278 billion, while illegal personal taxes were $927 billion.
The "controversy" continues. On August 31, 2005, Federal Judge Emmet Sullivan, ruled that the government is not even REQUIRED to answer the American people's questions as to the legality or existence of the personal tax law, despite the guarantees afforded by the FIRST Ammendment.
The IRS has refused to show ANY laws requiring payment of personal income taxes, despite a voluminous code, now the size of a rather large telephone directory!
According to Bill Clinton, while questioned about the legality of personal taxation on March 11, 1993: "We can't be fixated on our desire to preserve the rights of ordinary Americans". WHAT???
The IRS code itself states that the personal income tax is VOLUNTARY! "Your income tax is 100% voluntary and your liquor tax is a 100% enforced tax."
The code does not even define the term "income". The Supreme Court has ruled income as constituting "gains from corporate activity". It has further ruled that employment is considered "private property" in the context of being exchanged for any form of payment (Coppage v. Kansas 1914).
NONE of any of the Supreme Court rulings have yet to be overturned!
If this doesn't give you a Christmas chuckle, then I don't know what will.
"Take me on" in the Comments section below.
Marko's Take
America: Freedom to Fascism - Director's Authorized Version, a documentary produced by the late, great Aaron Russo, is a definitive piece on the topic. I had the honor of knowing Aaron personally in his final months of life, before he succumbed to cancer in 2007.
The information in today's blog is excerpted directly from that documentary, which you may view in its entirety merely by clicking the link above.
As early as 1894, The Supreme Court of the United States ruled that the power to tax wages was unconstitutional. However, Congress later passed the 16th ammendment in 1913 in order to impose a bona-fide income tax. At that time, President Woodrow Wilson said "I am a most unhappy man. I have unwittingly ruined a nation. America is now controlled by its system of credit". By system of credit, he was referring to the accompanying establishment of the Federal Reserve.
The 16th Ammendment conferred NO new powers of taxation and was NOT ratified by the states.
Furthermore, the U.S. Constitution specifies that ANY direct tax must be "apportioned", meaning divided equally among all people. As you know, the personal income tax is NOT.
But aren't income taxes vital to provide essential services? NO!
Education is paid for by property taxes. Highways are paid for by the various taxes on gasoline. Defense was paid for by CORPORATE taxes, which are entirely legal. However, Defense expenditures have ballooned to such an extent, that even corporate taxes in their entirety are not, at this time, sufficient.
As recently as 2005, legal Corporate taxes were $278 billion, while illegal personal taxes were $927 billion.
The "controversy" continues. On August 31, 2005, Federal Judge Emmet Sullivan, ruled that the government is not even REQUIRED to answer the American people's questions as to the legality or existence of the personal tax law, despite the guarantees afforded by the FIRST Ammendment.
The IRS has refused to show ANY laws requiring payment of personal income taxes, despite a voluminous code, now the size of a rather large telephone directory!
According to Bill Clinton, while questioned about the legality of personal taxation on March 11, 1993: "We can't be fixated on our desire to preserve the rights of ordinary Americans". WHAT???
The IRS code itself states that the personal income tax is VOLUNTARY! "Your income tax is 100% voluntary and your liquor tax is a 100% enforced tax."
The code does not even define the term "income". The Supreme Court has ruled income as constituting "gains from corporate activity". It has further ruled that employment is considered "private property" in the context of being exchanged for any form of payment (Coppage v. Kansas 1914).
NONE of any of the Supreme Court rulings have yet to be overturned!
If this doesn't give you a Christmas chuckle, then I don't know what will.
"Take me on" in the Comments section below.
Marko's Take
Sunday, December 20, 2009
California Crisis Deepens... Part 4
OK! So I first thought there would only be 3 parts to this series. However, things keep getting worse on a daily basis. Who knows? There might even be a Part 5 and 6! Let's see how things develop.
In any case, California's deterioration continues. According to a very recent article in the L.A. Times, Bill Watkins, who heads the Center for Economic Research and Forecasting at Califonia Lutheran University, released a recent report. He urges that the State begin emergency discussions with both the Obama administration and the Federal Reserve in the increasingly likely event of a state default. Had he read "Marko's Take" he would have realized that these discussions are already taking place!
Watkins believes that the odds now FAVOR a default. California Treasurer Bill Lockyear sharply took exception with Mr. Watkins' assessment, accusing him of "irresponsible fear-mongering". It makes one wonder whether Mr. Lockyear has spoken to Governor Schwarzenegger who has been saying the same thing!
The crux of the problem is centered in the budget. Republicans are adamant in their refusal to increase taxes, while Democrats are equally determined in THEIR refusal of further budget cuts.
The only reason that California is NOT in default is that some banks still honor the IOUs already issued on 4 separate occasions. If they should refuse to honor those IOUs AND the Obama Administration refuses to provide emergency bailout funds, then the State will have no choice.
As I've mentioned previously in the "California Crisis Deepens" series, the State is SO important, not only to the United States, but the world. I believe the Obama admistration will have NO choice but to provide emergency bailout funds. Therefore, I disagree with Mr. Watkins' conclusions entirely.
California has come up with a rather interesting partial solution to the budget stalemate which will appear on the 2010 ballot: the legalization of growing marijuana! In so doing, the pot industry, the largest agricultural sector in the Golden State, will be subject to taxation at a variety of levels and should be able to raise revenues substantially. Recent polls show this initiative is very likely to pass.
I hope the new initiative has left this troubling piece on a "high" note!
So, why don't you give me your "Take" in the comments section below?
Marko's Take
In any case, California's deterioration continues. According to a very recent article in the L.A. Times, Bill Watkins, who heads the Center for Economic Research and Forecasting at Califonia Lutheran University, released a recent report. He urges that the State begin emergency discussions with both the Obama administration and the Federal Reserve in the increasingly likely event of a state default. Had he read "Marko's Take" he would have realized that these discussions are already taking place!
Watkins believes that the odds now FAVOR a default. California Treasurer Bill Lockyear sharply took exception with Mr. Watkins' assessment, accusing him of "irresponsible fear-mongering". It makes one wonder whether Mr. Lockyear has spoken to Governor Schwarzenegger who has been saying the same thing!
The crux of the problem is centered in the budget. Republicans are adamant in their refusal to increase taxes, while Democrats are equally determined in THEIR refusal of further budget cuts.
The only reason that California is NOT in default is that some banks still honor the IOUs already issued on 4 separate occasions. If they should refuse to honor those IOUs AND the Obama Administration refuses to provide emergency bailout funds, then the State will have no choice.
As I've mentioned previously in the "California Crisis Deepens" series, the State is SO important, not only to the United States, but the world. I believe the Obama admistration will have NO choice but to provide emergency bailout funds. Therefore, I disagree with Mr. Watkins' conclusions entirely.
California has come up with a rather interesting partial solution to the budget stalemate which will appear on the 2010 ballot: the legalization of growing marijuana! In so doing, the pot industry, the largest agricultural sector in the Golden State, will be subject to taxation at a variety of levels and should be able to raise revenues substantially. Recent polls show this initiative is very likely to pass.
I hope the new initiative has left this troubling piece on a "high" note!
So, why don't you give me your "Take" in the comments section below?
Marko's Take
Saturday, December 19, 2009
Interpreting The Golden Rule
For the last 11 days, Gold has received a merciless beating. So bad, in fact, that the "barborous relic" temporarily breached the $1,100 level on both Thursday and Friday, an event I very much did NOT expect.
In so doing, the peak-to-trough loss amounted to nearly 10%, accompanied by a drop in Gold and Silver miner indexes of nearly 20%!
I mentioned in yesterday's blog to temporarily ignore the advice to sell Gold if it fell below $1,100. I'll explain my reasoning today.
First of all, the breach was "immaterial". In general, a good rule-of-thumb in determining materiality is 3-5% accompanied by some reasonable amount of time during which the "stop loss" remains in force. The twin drops to $1,096 or so that occurred, met NEITHER of these criteria. Since I hadn't explained this before, I felt it important to elaborate. Both Thursday's and Friday's breaches were very temporary and accompanied by extremely rare market circumstances.
On Thursday, the downward penetration occurred in the last 15 minutes of trading, amidst rumors of heavy liquidation by a large hedge fund and happened during extremely light trading. On Friday, the downside break transpired during what's known as a "quadruple witching day". These days occur on the second-to-last Friday of a calendar quarter and are known for freakish volatility. Quadruple witch days happen when 4 series of derivatives expire: Stock options, stock index options, stock index futures and single stock futures.
Looking down the road, Monday ought to be a better bet for evaluating whether to employ the $1,100 rule.
My belief is that BOTH Thursday AND Friday were flukes, intentionally orchestrated by space aliens in order to make me look bad! However, my "big picture" standpoint remains unchanged.
I continue to maintain my posture that we have concluded the initial stage of a violent bottoming process, which still may take a few weeks to completely conclude. I DO NOT expect the $1,100 level to be re-visited, but I do believe that we will witness some additional sort of "yo-yo" action prior to the launching of a SUBSTANTIAL move higher.
For now, I'll defer on details as to how high I think the next major top will be. However, I wish to remind everyone involved in Gold and Silver, that the higher we go, the more nutty trading will become. What's transpired so far has been EXPECTED, as it is reminiscent of the internet bubble, which I FOUGHT tooth and nail, much to my chagrin.
The point of this is to assist you in avoiding the very mistakes I made back then. This type of volatile action makes it extremely difficult to stomach. But endure it you should, because in my opinion, those of you prepared to ride out this roller coaster will be rewarded handsomely.
Have a great weekend! If you have any questions or comments, please leave them below.
Marko's Take
In so doing, the peak-to-trough loss amounted to nearly 10%, accompanied by a drop in Gold and Silver miner indexes of nearly 20%!
I mentioned in yesterday's blog to temporarily ignore the advice to sell Gold if it fell below $1,100. I'll explain my reasoning today.
First of all, the breach was "immaterial". In general, a good rule-of-thumb in determining materiality is 3-5% accompanied by some reasonable amount of time during which the "stop loss" remains in force. The twin drops to $1,096 or so that occurred, met NEITHER of these criteria. Since I hadn't explained this before, I felt it important to elaborate. Both Thursday's and Friday's breaches were very temporary and accompanied by extremely rare market circumstances.
On Thursday, the downward penetration occurred in the last 15 minutes of trading, amidst rumors of heavy liquidation by a large hedge fund and happened during extremely light trading. On Friday, the downside break transpired during what's known as a "quadruple witching day". These days occur on the second-to-last Friday of a calendar quarter and are known for freakish volatility. Quadruple witch days happen when 4 series of derivatives expire: Stock options, stock index options, stock index futures and single stock futures.
Looking down the road, Monday ought to be a better bet for evaluating whether to employ the $1,100 rule.
My belief is that BOTH Thursday AND Friday were flukes, intentionally orchestrated by space aliens in order to make me look bad! However, my "big picture" standpoint remains unchanged.
I continue to maintain my posture that we have concluded the initial stage of a violent bottoming process, which still may take a few weeks to completely conclude. I DO NOT expect the $1,100 level to be re-visited, but I do believe that we will witness some additional sort of "yo-yo" action prior to the launching of a SUBSTANTIAL move higher.
For now, I'll defer on details as to how high I think the next major top will be. However, I wish to remind everyone involved in Gold and Silver, that the higher we go, the more nutty trading will become. What's transpired so far has been EXPECTED, as it is reminiscent of the internet bubble, which I FOUGHT tooth and nail, much to my chagrin.
The point of this is to assist you in avoiding the very mistakes I made back then. This type of volatile action makes it extremely difficult to stomach. But endure it you should, because in my opinion, those of you prepared to ride out this roller coaster will be rewarded handsomely.
Have a great weekend! If you have any questions or comments, please leave them below.
Marko's Take
Friday, December 18, 2009
Tips On Grabbing Higher Yields
There currently exist very few ways of investing safely while earning a decent return. Those investing in CDs or Treasuries are painfully aware of the ridiculously low yields available on short-term and even long term instruments.
There are two different forms of risk when investing in fixed income. One of these is credit risk, or the risk of default. The second risk is referred to as "duration", or the risk of an adverse move in the overall level of interest rates. Duration is derived largely from a bond's date of maturity. The more distant the maturity date, the greater the duration. In turn, as a bond's duration increases, so will its sensitivity to an upward move in interest rates.
One form of higher yielding instruments, which avoid both types of risk, are known as "TIPs", or Treasury Inflation Protected Securities. They have certain attributes far different from any other type of fixed-income vehicle. For example, while they DO pay interest they also have a feature which affords protection against inflation as the name suggests.
The "principal" amount of a TIP is adjusted semi-annually for the increase or decrease in the reported Consumer Price Index (CPI). For example, if the CPI is reported at 6%, the holder receives a corresponding amount in additional prinicipal. Regardless of the direction of inflation, TIPs will NEVER return less than zero and will mature at 100% of face value as they are an obligation of the U.S. Government.
A variant of TIPs are called I-Bonds (IBs), which are similar to "savings bonds". However, one can only buy a very limited amount of IBs each year per social security number. You won't receive interest from your IBs until they mature. The minimum holding period is one year.
TIPs and IBs DO differ in terms of their respective taxable status. They are both exempt from state and local tax, but not federal tax. TIPs require the holder to pay tax on distributions and the "phantom" income accrued if the principal is adjusted upward for the rate of inflation. Therefore, TIPs are probably a better choice for IRAs, while IBs are typically preferred for other types of accounts. However, it would be prudent to verify tax treatment with your accountant.
Finally, TIPs are available via Exchange Traded Funds (ETFs), but these are relatively new. My personal favorite has the symbol "TIP" ( What else?) and trades on the New York Stock Exchange.
I hope you find these "tips" on grabbing higher yields a real winner.
Please feel free to leave comments below.
Marko's Take
P.S. Gold actually breached the $1,100 barrier I spoke of two days ago. However, the penetration took place only in the final 15 minutes of very thin trading yesterday and was a mere $3 per ounce. Please do nothing today. I'll need to explain why later. Beginning Monday, if Gold breaks below $1,100, use that as your "stop loss" point and once Gold penetrates $1,100 on the upside, it should be safe to re-enter the market.
There are two different forms of risk when investing in fixed income. One of these is credit risk, or the risk of default. The second risk is referred to as "duration", or the risk of an adverse move in the overall level of interest rates. Duration is derived largely from a bond's date of maturity. The more distant the maturity date, the greater the duration. In turn, as a bond's duration increases, so will its sensitivity to an upward move in interest rates.
One form of higher yielding instruments, which avoid both types of risk, are known as "TIPs", or Treasury Inflation Protected Securities. They have certain attributes far different from any other type of fixed-income vehicle. For example, while they DO pay interest they also have a feature which affords protection against inflation as the name suggests.
The "principal" amount of a TIP is adjusted semi-annually for the increase or decrease in the reported Consumer Price Index (CPI). For example, if the CPI is reported at 6%, the holder receives a corresponding amount in additional prinicipal. Regardless of the direction of inflation, TIPs will NEVER return less than zero and will mature at 100% of face value as they are an obligation of the U.S. Government.
A variant of TIPs are called I-Bonds (IBs), which are similar to "savings bonds". However, one can only buy a very limited amount of IBs each year per social security number. You won't receive interest from your IBs until they mature. The minimum holding period is one year.
TIPs and IBs DO differ in terms of their respective taxable status. They are both exempt from state and local tax, but not federal tax. TIPs require the holder to pay tax on distributions and the "phantom" income accrued if the principal is adjusted upward for the rate of inflation. Therefore, TIPs are probably a better choice for IRAs, while IBs are typically preferred for other types of accounts. However, it would be prudent to verify tax treatment with your accountant.
Finally, TIPs are available via Exchange Traded Funds (ETFs), but these are relatively new. My personal favorite has the symbol "TIP" ( What else?) and trades on the New York Stock Exchange.
I hope you find these "tips" on grabbing higher yields a real winner.
Please feel free to leave comments below.
Marko's Take
P.S. Gold actually breached the $1,100 barrier I spoke of two days ago. However, the penetration took place only in the final 15 minutes of very thin trading yesterday and was a mere $3 per ounce. Please do nothing today. I'll need to explain why later. Beginning Monday, if Gold breaks below $1,100, use that as your "stop loss" point and once Gold penetrates $1,100 on the upside, it should be safe to re-enter the market.
Thursday, December 17, 2009
A New Definition Of Misery
In the 1970's, economist Arthur Okun, a former adviser to President Lyndon Johnson, coined a concept known as the "Misery Index" (MI). At that time, the MI was the sum of the existing unemployment rate plus the rate of inflation. Since higher rates of either are considered unwelcome, a larger MI was considered a decent way to assess the condition of the U.S. Economy.
Using Okun's definition, the MI peaked in 1980 at 20.76,, the final year of the Carter Admistration. By contrast, the trough in misery took place in 1953, during the Eisenhower Administration at 3.74. In more modern times, the Clinton Administration recorded a very low 6.05 in 1998. As of the last year reported, 2008, the MI stood at 9.68.
Now, Moody's, a highly recognized credit rating agency, has developed a NEW method of computing "misery". Moody's metric adds the country's fiscal deficit and its unemployment rate. The results just released are STUNNING!
Using Moody's own current numbers, the United States rates as the EIGHTH WORST in the world, one step below ICELAND! The absolute most miserable countries include Spain, Latvia, Ireland and Greece.
Forbes has joined the "misery" party, too, and has come up with its own "Misery Measure" using it to rate various American cities. Forbes' methodology takes into account 6 factors including commute times, weather and crime.
Using the Forbes approach, Detroit rates as America's most miserable city, with sister city Flint ranked third. New York comes in at number 4, while Los Angeles is rated 6th. (No wonder I'm so grouchy!)
According to Forbes, the greatest surprise was Charlotte, North Carolina which came in 9th. It scored the worst in violent crime and scored in the bottom half of all six categories.
But, as they say "Misery Loves Company"!! Therefore, we should all be pretty damn happy!
As to me personally, I am not in the least bit miserable even if I may come across as grouchy. I would welcome your comments or questions in the section below.
Marko's Take
Using Okun's definition, the MI peaked in 1980 at 20.76,, the final year of the Carter Admistration. By contrast, the trough in misery took place in 1953, during the Eisenhower Administration at 3.74. In more modern times, the Clinton Administration recorded a very low 6.05 in 1998. As of the last year reported, 2008, the MI stood at 9.68.
Now, Moody's, a highly recognized credit rating agency, has developed a NEW method of computing "misery". Moody's metric adds the country's fiscal deficit and its unemployment rate. The results just released are STUNNING!
Using Moody's own current numbers, the United States rates as the EIGHTH WORST in the world, one step below ICELAND! The absolute most miserable countries include Spain, Latvia, Ireland and Greece.
Forbes has joined the "misery" party, too, and has come up with its own "Misery Measure" using it to rate various American cities. Forbes' methodology takes into account 6 factors including commute times, weather and crime.
Using the Forbes approach, Detroit rates as America's most miserable city, with sister city Flint ranked third. New York comes in at number 4, while Los Angeles is rated 6th. (No wonder I'm so grouchy!)
According to Forbes, the greatest surprise was Charlotte, North Carolina which came in 9th. It scored the worst in violent crime and scored in the bottom half of all six categories.
But, as they say "Misery Loves Company"!! Therefore, we should all be pretty damn happy!
As to me personally, I am not in the least bit miserable even if I may come across as grouchy. I would welcome your comments or questions in the section below.
Marko's Take
Wednesday, December 16, 2009
A Safe Way To Trade The Tricky Gold Market
I realize that I've admonished readers from attempting to time what I expect to be a wild and woolly ride: Marko's Take: Gold Revisited: What To Do Now. However, the strategy that I'm about to explain has nothing to do with trying to pick short term tops and bottoms. I discussed this approach very briefly in the blog cited above and I'd like to amplify on it today.
Let's take two scenarios: First, that I could be wrong as to my opinion that we are at a critical juncture and that one should buy with both hands. Or, Secondly, that I've been indeed correct and Gold is concluding its bottoming process prior to vaulting much, much higher.
The way I'll know I'm wrong will be simple - Gold breaks $1,100 on the downside. If this should occur, my advice is simple. ABORT! I would use that figure as a point of "stop loss", meaning that one should keep that figure in mind as a failsafe in order to prevent a potentially significant loss. As of last night, Gold closed at about $1,125, so any losses could be kept to a minimum.
Now, let's humor the absurd possibilty that I'm indeed correct! Here's my advice: Let's assume that you have $100,000 to deploy. Yes, I know, who has $100K? However, I'm using that number for simplicity.
I've continued to recommend the Junior Gold and Silver Miner basket, which trades under the symbol GDXJ. Step one: Place the entire amount in GDXJ, which closed yesterday at $25.89 per share. That would afford you nearly 4,000 shares.
Assuming that GDXJ rises in concert with Gold itself, begin the following process: Let's say that your account rises to $110,000. At that point, you might SELL $10,000 worth of GDXJ, thereby reducing your basis to $90,000 while retaining the original $100,000 to ride.
Next, allow the $100,000 in play to reach $120,000 and then SELL $10,000 of GDXJ again. As a result, you will have a basis of $80,000 (the original $100K minus the $20K you've sold). In addition, you'll have $110,000 riding.
Keep repeating this process. Once the $110,000 reaches $130,000, take another $10,000 "off the table".
Now your total maximum loss will be reduced to $70,000, while you'll be benefitting from a $120,000 on-going position.
This process should ultimately allow you to remove your ENTIRE original investment and have a substantial amount of dough "in play". The reason that this method will prove invaluable is that once Gold does top, it is likely to turn on a dime and may very well come crashing down, wiping out one's entire gains. Don't believe me? Just ask one of the temporary "dotcom" millionaires who saw the Nasdaq fall by a mind-numbing 80%, which in some cases, wiped them out completely!
Had they followed a strategy similar to the one described above, they would have prevented losses and kept the bulk of their gains!
One important issue with this strategy regards the type of account in which it is employed. For example, an IRA is ideal as it avoids short and long term capital gains accounting. However, I'm not an accountant, and everyone's situation is unique, so it might be a good idea to consult with a tax professional.
I realize that this process may be cumbersome and is in complete contrast with famous investors like Warren Buffett, who advocate a long term buy and hold strategy. However, the Gold market, in my opinion, is in the second and possibly FINAL stage of a bona-fide mania. Mr. Buffett, to my knowledge, avoids participating in manias altogether. However, things are tough and following this strategy in Gold at this time, may literally prove life changing!
During the second phase of the last mania in Gold, a bottom was reached in January, 1977, at $120 per ounce. The ensuing high was reached exactly 3 years later at $850 per ounce - a 7 fold gain! As to the current mania, the latest major low was reached in November, 2008, at roughly $700 per ounce. Applying the historical precedent, a similar gain would project to $4,900 per ounce by 2011!!!
I hope you found this piece useful and informative. It ought to be interesting. Who couldn't use some dough these days? If you have comments or questions, please leave them in the section below.
Marko's Take
Let's take two scenarios: First, that I could be wrong as to my opinion that we are at a critical juncture and that one should buy with both hands. Or, Secondly, that I've been indeed correct and Gold is concluding its bottoming process prior to vaulting much, much higher.
The way I'll know I'm wrong will be simple - Gold breaks $1,100 on the downside. If this should occur, my advice is simple. ABORT! I would use that figure as a point of "stop loss", meaning that one should keep that figure in mind as a failsafe in order to prevent a potentially significant loss. As of last night, Gold closed at about $1,125, so any losses could be kept to a minimum.
Now, let's humor the absurd possibilty that I'm indeed correct! Here's my advice: Let's assume that you have $100,000 to deploy. Yes, I know, who has $100K? However, I'm using that number for simplicity.
I've continued to recommend the Junior Gold and Silver Miner basket, which trades under the symbol GDXJ. Step one: Place the entire amount in GDXJ, which closed yesterday at $25.89 per share. That would afford you nearly 4,000 shares.
Assuming that GDXJ rises in concert with Gold itself, begin the following process: Let's say that your account rises to $110,000. At that point, you might SELL $10,000 worth of GDXJ, thereby reducing your basis to $90,000 while retaining the original $100,000 to ride.
Next, allow the $100,000 in play to reach $120,000 and then SELL $10,000 of GDXJ again. As a result, you will have a basis of $80,000 (the original $100K minus the $20K you've sold). In addition, you'll have $110,000 riding.
Keep repeating this process. Once the $110,000 reaches $130,000, take another $10,000 "off the table".
Now your total maximum loss will be reduced to $70,000, while you'll be benefitting from a $120,000 on-going position.
This process should ultimately allow you to remove your ENTIRE original investment and have a substantial amount of dough "in play". The reason that this method will prove invaluable is that once Gold does top, it is likely to turn on a dime and may very well come crashing down, wiping out one's entire gains. Don't believe me? Just ask one of the temporary "dotcom" millionaires who saw the Nasdaq fall by a mind-numbing 80%, which in some cases, wiped them out completely!
Had they followed a strategy similar to the one described above, they would have prevented losses and kept the bulk of their gains!
One important issue with this strategy regards the type of account in which it is employed. For example, an IRA is ideal as it avoids short and long term capital gains accounting. However, I'm not an accountant, and everyone's situation is unique, so it might be a good idea to consult with a tax professional.
I realize that this process may be cumbersome and is in complete contrast with famous investors like Warren Buffett, who advocate a long term buy and hold strategy. However, the Gold market, in my opinion, is in the second and possibly FINAL stage of a bona-fide mania. Mr. Buffett, to my knowledge, avoids participating in manias altogether. However, things are tough and following this strategy in Gold at this time, may literally prove life changing!
During the second phase of the last mania in Gold, a bottom was reached in January, 1977, at $120 per ounce. The ensuing high was reached exactly 3 years later at $850 per ounce - a 7 fold gain! As to the current mania, the latest major low was reached in November, 2008, at roughly $700 per ounce. Applying the historical precedent, a similar gain would project to $4,900 per ounce by 2011!!!
I hope you found this piece useful and informative. It ought to be interesting. Who couldn't use some dough these days? If you have comments or questions, please leave them in the section below.
Marko's Take
Tuesday, December 15, 2009
Recovery, Recession Or Depression?
Of course, the answer depends on who's talking, but since this is Marko's Take, I'll weigh in as to my personal opinion.
Before we venture further, let's first review the difference between a "recession" and a "depression". The standard definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters. A depression is any economic downturn where real GDP declines by more than 10%. A recession is an economic downturn that is less severe.
Larry Summers, who formerly held the position of Treasury Secretary, is now the head of President Obama's National Economic Council. Mr. Summers, whose credentials are exemplary, proclaimed yesterday that "everyone agrees that the recession is over"! Mr. Summers, for some reason, didn't check with me, as I entirely and respectfully disagree!
Christina Romer, a member of the President's Council of Economic Advisers has a differerent view. Mrs. Romer believes the country is still in a recession. Apparently, Mr. Summers did not check with Mrs. Romer either!
John "Walter" Williams, who has a fantastic website called "Shadow Stats" (http://www.shadowstats.com/), has an entirely different point of view. Dr. Williams believes that we are currently in a "double-dip depression". According to HIS methodology for computing various economic statistics, in the fourth quarter of 2008 and first quarter of 2009, Gross Domestic Product fell by approximately 6% each. Therefore, peak-to-trough, the criteria for a Depression has already been met.
At this time, as far as I'm concerned, I'm completely in sync with Dr. Williams, but I would add something further. I've written recently about possible signs of a "recovery", however, this may only prove to be some sort of temporary lull. I believe that we were in a depression, which ultimately may turn into a HYPER-INFLATIONARY one. I believe that Dr. Williams would agree with this assessment as well, but he doesn't specifically say so in the article appearing on his home page.
In any event, I felt it important to distinguish between these terms and the various points of view on them. I hope you find this piece informative and interesting. As to finding it useful, well, honestly, the economy is beyond our control! If you would like to weigh-in with your own "Take", please feel free to do so by leaving a comment below.
Marko's Take
P.S. The Producer Price Index was just released this morning. It went up during the last month by 1.8%!
Before we venture further, let's first review the difference between a "recession" and a "depression". The standard definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters. A depression is any economic downturn where real GDP declines by more than 10%. A recession is an economic downturn that is less severe.
Larry Summers, who formerly held the position of Treasury Secretary, is now the head of President Obama's National Economic Council. Mr. Summers, whose credentials are exemplary, proclaimed yesterday that "everyone agrees that the recession is over"! Mr. Summers, for some reason, didn't check with me, as I entirely and respectfully disagree!
Christina Romer, a member of the President's Council of Economic Advisers has a differerent view. Mrs. Romer believes the country is still in a recession. Apparently, Mr. Summers did not check with Mrs. Romer either!
John "Walter" Williams, who has a fantastic website called "Shadow Stats" (http://www.shadowstats.com/), has an entirely different point of view. Dr. Williams believes that we are currently in a "double-dip depression". According to HIS methodology for computing various economic statistics, in the fourth quarter of 2008 and first quarter of 2009, Gross Domestic Product fell by approximately 6% each. Therefore, peak-to-trough, the criteria for a Depression has already been met.
At this time, as far as I'm concerned, I'm completely in sync with Dr. Williams, but I would add something further. I've written recently about possible signs of a "recovery", however, this may only prove to be some sort of temporary lull. I believe that we were in a depression, which ultimately may turn into a HYPER-INFLATIONARY one. I believe that Dr. Williams would agree with this assessment as well, but he doesn't specifically say so in the article appearing on his home page.
In any event, I felt it important to distinguish between these terms and the various points of view on them. I hope you find this piece informative and interesting. As to finding it useful, well, honestly, the economy is beyond our control! If you would like to weigh-in with your own "Take", please feel free to do so by leaving a comment below.
Marko's Take
P.S. The Producer Price Index was just released this morning. It went up during the last month by 1.8%!
Monday, December 14, 2009
Rethinking The American Dream
For as long as I can remember, the United States has been known as the "land of opportunity". The "American Dream" was a popularized notion that even the poorest of immigrants and citizens could realize untold success in the United States, by virtue of the opportunities afforded by our free and entrepreneurial spirit.
Unfortunately, that's all changed. Not only have some of the liberties we once enjoyed been taken from us, but America has now become a complete horror show. Just take a look around and you'll see all the "For Lease" or "Going Out Of Business" signs. In so doing, you'll become aware of the trememdous pressure this formerly accommodating economy has been putting people through.
Small businesses are failing in droves. The very driver of our previous economic miracle had been via small business, be it a garage, which would ultimately create many millionaires, a la Microsoft, or some housewife's notion that garage sales could be taken national, like EBay!
Now, the "American Dream" has been reduced to mere survival! Sadly, while innovation continues, the means of financing and promoting that innovation has been thwarted by the only beneficiaries of the current admistration's efforts. OUR BANKS!!!! Statistics are unequivocal in demonstrating an utter reluctance to lend plus a regulatory effort to furthur impose roadblocks to lending.
This makes me want to SCREAM!
Economists, as a whole, are notorious for their bumblehood, but they DO agree that small business and innovation are the key drivers of economic growth.
Sadly, the adminstration has done precious little to help the plight of small business while rallying around the "boy's club", which includes some of Wall St., the Federal Reserve and the administration itself.
Clearly, the administration knows better. I'm just a regular guy in Los Angeles. On the other hand, the boy's club has all the true information at ITS fingertips.
All I can suggest at this point is the ballot box. The election of 2010 can send the greatest possible message to our "benefactors". Please vote! Please vote! Our future DEPENDS on it!
I apologize if my ramblings have come across as hyperbolic. My intention was to demonstrate the passion that this issue raises in me. If nothing else, tell your friends, leave a comment and let the power of social networking do it's miracle.
Marko's Take
Unfortunately, that's all changed. Not only have some of the liberties we once enjoyed been taken from us, but America has now become a complete horror show. Just take a look around and you'll see all the "For Lease" or "Going Out Of Business" signs. In so doing, you'll become aware of the trememdous pressure this formerly accommodating economy has been putting people through.
Small businesses are failing in droves. The very driver of our previous economic miracle had been via small business, be it a garage, which would ultimately create many millionaires, a la Microsoft, or some housewife's notion that garage sales could be taken national, like EBay!
Now, the "American Dream" has been reduced to mere survival! Sadly, while innovation continues, the means of financing and promoting that innovation has been thwarted by the only beneficiaries of the current admistration's efforts. OUR BANKS!!!! Statistics are unequivocal in demonstrating an utter reluctance to lend plus a regulatory effort to furthur impose roadblocks to lending.
This makes me want to SCREAM!
Economists, as a whole, are notorious for their bumblehood, but they DO agree that small business and innovation are the key drivers of economic growth.
Sadly, the adminstration has done precious little to help the plight of small business while rallying around the "boy's club", which includes some of Wall St., the Federal Reserve and the administration itself.
Clearly, the administration knows better. I'm just a regular guy in Los Angeles. On the other hand, the boy's club has all the true information at ITS fingertips.
All I can suggest at this point is the ballot box. The election of 2010 can send the greatest possible message to our "benefactors". Please vote! Please vote! Our future DEPENDS on it!
I apologize if my ramblings have come across as hyperbolic. My intention was to demonstrate the passion that this issue raises in me. If nothing else, tell your friends, leave a comment and let the power of social networking do it's miracle.
Marko's Take
Sunday, December 13, 2009
California Crisis Deepens.... Part 3
The situation in California continues to deteriorate despite all the preventitive measures employed. John Chiang, State Controller, just came out with his most recent report. In that report, he went into detail as to the current status of the emergency IOUs issued.
Chiang notes that the IOUs issued between July 2 and September 4, 2009, totalled 450,000 - worth $2.6 billion. He further reports that they have STOPPED accruing interest as of September 4th, the maturity date. The interest had been a rather paltry 3.75% to begin with!
Hurt by heavy investment losses over their last fiscal years, giants CalPers (California Public Employment Retirement System) and CalSTRs (California State Teachers Retirement Systems) were affected by downgrades from Moody's, a highly recognized credit rating agency. Moody's specifically noted the lowered possibility of these funds to meet future obligations to pensioners.
The two funds together STILL hold a staggering $338 billion in assets despite losses of more than 25% in their last fiscal years. CalPers remains the single largest pension fund.
According to the LA Times, the California State University System which incorporates 23 campuses and 450,000 students, has been subject to budget cuts of more than $500 million. As a result, "Cal State" has been unable to avoid staff and faculty furloughs, steep student fee hikes and severe reduction in enrollment.
Currently, according to a variety of analysts, California faces a $21 billion deficit for the current fiscal year, ending June, 30th. Futhermore, the deficit for the subsequent two fiscal years is projected to rise to ANOTHER $44 billion!
On the plus side, the news is rather scant. In October, for example, prices of homes actually up-ticked, although being driven by the Federal tax credit for first-time buyers. In addition, the state ADDED 26,000 new jobs. So, if these sources are correct, California is firing teachers and hiring more adminstrators. Talk about the left hand not knowing what the right hand is doing! Whodda thunk it?
Meanwhile, leading Republican candidates to replace the current governor, former Ebay head Meg Whitman and Steve Poizner, have offered no solutions to the fiscal gap on their own. What's a mother to do?
As you can clearly infer, California appears to be entering some sort of "death spiral". But, fortunately this only represents 1/10th of the population of the United States!
I hope you find this essay useful and informative. I welcome comments, both pro and con. I will continue to cover California over the ensuing weeks and months as new issues surface.
Marko's Take
Chiang notes that the IOUs issued between July 2 and September 4, 2009, totalled 450,000 - worth $2.6 billion. He further reports that they have STOPPED accruing interest as of September 4th, the maturity date. The interest had been a rather paltry 3.75% to begin with!
Hurt by heavy investment losses over their last fiscal years, giants CalPers (California Public Employment Retirement System) and CalSTRs (California State Teachers Retirement Systems) were affected by downgrades from Moody's, a highly recognized credit rating agency. Moody's specifically noted the lowered possibility of these funds to meet future obligations to pensioners.
The two funds together STILL hold a staggering $338 billion in assets despite losses of more than 25% in their last fiscal years. CalPers remains the single largest pension fund.
According to the LA Times, the California State University System which incorporates 23 campuses and 450,000 students, has been subject to budget cuts of more than $500 million. As a result, "Cal State" has been unable to avoid staff and faculty furloughs, steep student fee hikes and severe reduction in enrollment.
Currently, according to a variety of analysts, California faces a $21 billion deficit for the current fiscal year, ending June, 30th. Futhermore, the deficit for the subsequent two fiscal years is projected to rise to ANOTHER $44 billion!
On the plus side, the news is rather scant. In October, for example, prices of homes actually up-ticked, although being driven by the Federal tax credit for first-time buyers. In addition, the state ADDED 26,000 new jobs. So, if these sources are correct, California is firing teachers and hiring more adminstrators. Talk about the left hand not knowing what the right hand is doing! Whodda thunk it?
Meanwhile, leading Republican candidates to replace the current governor, former Ebay head Meg Whitman and Steve Poizner, have offered no solutions to the fiscal gap on their own. What's a mother to do?
As you can clearly infer, California appears to be entering some sort of "death spiral". But, fortunately this only represents 1/10th of the population of the United States!
I hope you find this essay useful and informative. I welcome comments, both pro and con. I will continue to cover California over the ensuing weeks and months as new issues surface.
Marko's Take
Saturday, December 12, 2009
The War In Iraq To Finally Pay Dividends
I wish to first say that I was terribly skeptical that the war would amount to ANY economic benefit to either the U.S., Iraq, or the world. I've had frequent debates amongst my close group of friends as to the merits of the war. But, based on information that I obtained, I can safely say that this war WILL pay dividends. Whether those dividends actually offset the cost of the war remains yet to be seen.
Over the last few days, the Iraqi Government has held auctions regarding the rights to develop certain properties. According to Al Jazeera, the bidders included 45 separate entities vying for 15 oil fields.
The bidders included Exxon-Mobil, British Petroleum, Italy's Eni spA, Occidental Petroleum, a joint venture between Anglo-Dutch Shell and Malaysia's state owned Petronas, France's Total, Angola's firm Sonangol, and the Chinese-owned CNPC. Quite a list, wouldn't you say?
The winning bidders were the joint venture between Shell and Malaysia's Sonangal and China's CNPC. The Shell-Petronas combination was the winner for the Majnoon field, containing 18 billion barrels in proven reserves, the largest property up for development! China was awarded rights to the Halifya field. Both of these properties are considered to be within areas believed to be fairly stable.
According to the Christian Science Monitor, some fields attracted no bids at all, as they are situated in places involving ongoing internal conflicts with the Kurds. Other fields recieved a single bid, but were rejected as the remuneration sought was too high. As a result, the Iraqi Government said it would develop those fields itself. East Baghdad recieved no bids at all, despite having proven reserves of more than 8 billion barrels!
If all goes as planned, Iraq's oil production will TRIPLE within the next 7 years to 10 million barrels a day, which would probably put it, by that time, as the world's LARGEST producer! Some skeptics suggest that the goals are unrealistic, but they are still confident that production will top at 6 million barrels per day, which would place Iraq amongst the very largest producers. Currently, the entire world produces 85 million barrels per day, which is declining, so this development is quite extraordinary.
I hope you find this informative and interesting. Whether you find it useful, is another story altogether, unless, of course, you're now kicking yourself for NOT being part of the bidding process! If you have any comments, pro or con, please submit them in the comments section below.
Marko's Take
Over the last few days, the Iraqi Government has held auctions regarding the rights to develop certain properties. According to Al Jazeera, the bidders included 45 separate entities vying for 15 oil fields.
The bidders included Exxon-Mobil, British Petroleum, Italy's Eni spA, Occidental Petroleum, a joint venture between Anglo-Dutch Shell and Malaysia's state owned Petronas, France's Total, Angola's firm Sonangol, and the Chinese-owned CNPC. Quite a list, wouldn't you say?
The winning bidders were the joint venture between Shell and Malaysia's Sonangal and China's CNPC. The Shell-Petronas combination was the winner for the Majnoon field, containing 18 billion barrels in proven reserves, the largest property up for development! China was awarded rights to the Halifya field. Both of these properties are considered to be within areas believed to be fairly stable.
According to the Christian Science Monitor, some fields attracted no bids at all, as they are situated in places involving ongoing internal conflicts with the Kurds. Other fields recieved a single bid, but were rejected as the remuneration sought was too high. As a result, the Iraqi Government said it would develop those fields itself. East Baghdad recieved no bids at all, despite having proven reserves of more than 8 billion barrels!
If all goes as planned, Iraq's oil production will TRIPLE within the next 7 years to 10 million barrels a day, which would probably put it, by that time, as the world's LARGEST producer! Some skeptics suggest that the goals are unrealistic, but they are still confident that production will top at 6 million barrels per day, which would place Iraq amongst the very largest producers. Currently, the entire world produces 85 million barrels per day, which is declining, so this development is quite extraordinary.
I hope you find this informative and interesting. Whether you find it useful, is another story altogether, unless, of course, you're now kicking yourself for NOT being part of the bidding process! If you have any comments, pro or con, please submit them in the comments section below.
Marko's Take
Friday, December 11, 2009
Gold: The Interim Bottom Is In!
Now, before I go any further, the title of this piece is a joke! NO ONE can predict whether or when any financial instrument has bottomed or topped. The status of the entity may appear to be at a certain juncture and the declarer of that status may appear to be correct. However, Gold could just as easily go down today, making me look like a complete ignoramous! I've read newsletters declare similar things time after time and embarrass themselves by their obviously poor advice on the very same day the newsletter was published!
In addition, any strong declaration of a bottom in Gold is a disservice to readers. They may interpret the statement as displaying such a high level of confidence, that readers act on it in an ill-advised way. Many newsletters use this tactic to bait new clients.
Now, on to the actual topic today: Gold - where it currently stands. As I've stated previously, it is my personal belief that the yellow metal and its cousin, Silver, are in the early stages of a parabolic rise, akin to the internet bubble of the late 90's.
Parabolic rises are characterized by long strings of advancing days, followed by a sudden and very sharp move lower, scaring the wits out of the holders. Skeptics of the rise then come out, in droves, arguing that these heart-wrenching corrections "prove" their belief that the financial instrument, such as Gold, was INDEED in a bubble and that they were right all along.
I, myself, once ran a hedge fund during the internet bubble and was one of those skeptics. I did the exact same thing, except I did it privately to my partner and employees. I was wrong each and every time! Thank God, I wasn't writing publicly about the topic or I would have looked like a complete jerk! This goes to show why experience is so vital when advising people and how difficult it is to navigate the markets. I was once a cocky, young punk, too! Thank God, AGAIN that they had the "jaws of life" or my foot would have remained permanently implanted in my mouth!
As to my current "Take", I actually DO believe that Gold is in a bottoming process. Indexes of Gold mining stocks have produced gains for the last two days and Gold stocks have consistently proven to lead Gold itself. In addition, several technical indicators I review, have reached levels absolutely consistent with virtually every other prior interim bottom.
Of course, those indicators aren't "inflammable", as Archie Bunker might say, but they ARE highly reliable from a statistical point of view. What they are suggesting right now, is that we are poised for a rally, NOT that a bona-fide bottom has occurred. The stats haven't been wrong once since November, 2008, when Gold bottomed at BELOW $700 per ounce.
Of course, there are plenty of reasons to further add credibility to my theory that the latest interim bottom is practically in. But, I've already covered them extensively in previous blogs.
Finally, by "bottom", I'm not precluding the possibility that Gold may meander around a bit as it re-engergizes before ultimately launching higher. This, too, happened during the dot-com mania, but these periods of vascillation were fairly short. And, they displayed some rather wild up days followed by a series of down days in addition to a pattern of wild intra-day swings.
So, my real agenda here is two-fold. One: to warn you of the dangers of reading hyperbolic "experts" possibly trying to bait you to subscribe to their newsletters (Fortunately, this blog is FREE!), and Two: lay out, using my own experience, a very possible scenario of what might transpire in the days and weeks ahead.
I hope you found this article useful and informative. Unlike some of those "experts" I've referred to, I've put my money where my mouth is. But, as to what you do, that's entirely your decision. If you have any thoughta, pro or con, I'd appreciate reading and responding to them in the comments section below.
Marko's Take
In addition, any strong declaration of a bottom in Gold is a disservice to readers. They may interpret the statement as displaying such a high level of confidence, that readers act on it in an ill-advised way. Many newsletters use this tactic to bait new clients.
Now, on to the actual topic today: Gold - where it currently stands. As I've stated previously, it is my personal belief that the yellow metal and its cousin, Silver, are in the early stages of a parabolic rise, akin to the internet bubble of the late 90's.
Parabolic rises are characterized by long strings of advancing days, followed by a sudden and very sharp move lower, scaring the wits out of the holders. Skeptics of the rise then come out, in droves, arguing that these heart-wrenching corrections "prove" their belief that the financial instrument, such as Gold, was INDEED in a bubble and that they were right all along.
I, myself, once ran a hedge fund during the internet bubble and was one of those skeptics. I did the exact same thing, except I did it privately to my partner and employees. I was wrong each and every time! Thank God, I wasn't writing publicly about the topic or I would have looked like a complete jerk! This goes to show why experience is so vital when advising people and how difficult it is to navigate the markets. I was once a cocky, young punk, too! Thank God, AGAIN that they had the "jaws of life" or my foot would have remained permanently implanted in my mouth!
As to my current "Take", I actually DO believe that Gold is in a bottoming process. Indexes of Gold mining stocks have produced gains for the last two days and Gold stocks have consistently proven to lead Gold itself. In addition, several technical indicators I review, have reached levels absolutely consistent with virtually every other prior interim bottom.
Of course, those indicators aren't "inflammable", as Archie Bunker might say, but they ARE highly reliable from a statistical point of view. What they are suggesting right now, is that we are poised for a rally, NOT that a bona-fide bottom has occurred. The stats haven't been wrong once since November, 2008, when Gold bottomed at BELOW $700 per ounce.
Of course, there are plenty of reasons to further add credibility to my theory that the latest interim bottom is practically in. But, I've already covered them extensively in previous blogs.
Finally, by "bottom", I'm not precluding the possibility that Gold may meander around a bit as it re-engergizes before ultimately launching higher. This, too, happened during the dot-com mania, but these periods of vascillation were fairly short. And, they displayed some rather wild up days followed by a series of down days in addition to a pattern of wild intra-day swings.
So, my real agenda here is two-fold. One: to warn you of the dangers of reading hyperbolic "experts" possibly trying to bait you to subscribe to their newsletters (Fortunately, this blog is FREE!), and Two: lay out, using my own experience, a very possible scenario of what might transpire in the days and weeks ahead.
I hope you found this article useful and informative. Unlike some of those "experts" I've referred to, I've put my money where my mouth is. But, as to what you do, that's entirely your decision. If you have any thoughta, pro or con, I'd appreciate reading and responding to them in the comments section below.
Marko's Take
Thursday, December 10, 2009
Investing In Soverign Debt: Much Riskier Than You Think
A couple of weeks ago, I covered the topic of default as it pertained to California, Marko's Take: California's Crisis Deepens... Part 2. I did not, at that time, examine the history and likelihood of default of the debt of other countries. The information is STUNNING.
The idea for this piece originally occured as the result of a report by David Faber on CNBC yesterday. What was most interesting about his report was how often soverign defaults occur. For example, in data presented going all the way back to 1800, there have been 4 separate periods in which "the percentage of countries either in default or restructuring their debt" has risen to as high as 40%!
Despite the world's current economic woes, that figure stands at a "mere" 20% today. But, that number is rising, especially in light of problems reported regarding Dubai, which I believe are far more significant than they originally appeared.
Moody's, a very highly recognized credit rating agency, has published a study as to various statistics regarding sovereign defaults, which primarily covers the period from 1983-2006. It also provides some limited information going back to 1949. The study covers 103 countries from the 1949 starting date. The information revealed is STARTLING.
For example, in 1983 there were NO nations assigned a "junk" status. But, by 2000, that number had reached 38%! In 2006, the number remained high at 36%.
According to Moody's, one country has even defaulted TWICE. Ukraine defaulted in both 1998 and 2000.
Historically, sovereign issuers, assigned a non-investment-grade rating, have a 25% likelihood of defaulting within 10 years of issuance. As to corporate issuers, which ought to possess a MUCH higher probability of default, the corresponding probabiltiy is barely higher at 32.6%.
Finally, once a country does default, the loss suffered by the holder is calculated by Moody's to be about HALF of the original value.
So, if you're thinking about investing in sovereign debt, all I can say is "caveat emptor" or, buyer beware!
I hope you found this essay useful and informative. If you have any comments, pro or con. or have additional information of relevance, I'd love to become aware of it in the comments section immediately below this piece.
I will again be covering Gold tomorrow, given that the sharp correction has caused many people to declare the so-called bubble has burst.
Marko's Take
The idea for this piece originally occured as the result of a report by David Faber on CNBC yesterday. What was most interesting about his report was how often soverign defaults occur. For example, in data presented going all the way back to 1800, there have been 4 separate periods in which "the percentage of countries either in default or restructuring their debt" has risen to as high as 40%!
Despite the world's current economic woes, that figure stands at a "mere" 20% today. But, that number is rising, especially in light of problems reported regarding Dubai, which I believe are far more significant than they originally appeared.
Moody's, a very highly recognized credit rating agency, has published a study as to various statistics regarding sovereign defaults, which primarily covers the period from 1983-2006. It also provides some limited information going back to 1949. The study covers 103 countries from the 1949 starting date. The information revealed is STARTLING.
For example, in 1983 there were NO nations assigned a "junk" status. But, by 2000, that number had reached 38%! In 2006, the number remained high at 36%.
According to Moody's, one country has even defaulted TWICE. Ukraine defaulted in both 1998 and 2000.
Historically, sovereign issuers, assigned a non-investment-grade rating, have a 25% likelihood of defaulting within 10 years of issuance. As to corporate issuers, which ought to possess a MUCH higher probability of default, the corresponding probabiltiy is barely higher at 32.6%.
Finally, once a country does default, the loss suffered by the holder is calculated by Moody's to be about HALF of the original value.
So, if you're thinking about investing in sovereign debt, all I can say is "caveat emptor" or, buyer beware!
I hope you found this essay useful and informative. If you have any comments, pro or con. or have additional information of relevance, I'd love to become aware of it in the comments section immediately below this piece.
I will again be covering Gold tomorrow, given that the sharp correction has caused many people to declare the so-called bubble has burst.
Marko's Take
Wednesday, December 9, 2009
"Recovering From Affluenza"
"Affluenza" is a clever combination of the words influenza and affluence. The term is derogatory and used by critics of over-consumerism. In fact, the term was popularized by a man named Oliver James, who wrote an entire book called "Affluenza".
Let's face it, a lot of us have, at one point or another, been subject to this condition. However, by sheer necessity, very few people can afford to now.
So, what I'd like to cover today are some "cures" that I've recently become aware of.
If you haven't already heard of this website, I highly recommend http://www.lowermybills.com/. The site is fantastic, especially when it comes to auto and homeowner's insurance. I'll give an example: I recently plugged in my auto insurance coverage details into GEICO's website. I also got one through "lower my bills". The latter was less than HALF! The site is also incredibly easy to use and you receive voluminous quotes.
As to grocery shopping, in my experience nothing beats the 99cent stores http://www.99only.com/. They have expanded at an incredible rate. The website, to which I have provided a link, searches for store locations. They're SO good, that during a recent trip to Ralph's, nearly all of the employees told me, off-the-record, that they shop at the 99cent stores!
Another phenonemal cure is the AT&T "U-Verse" program www.att.com/u-verse. It has an extremely attractive bundling of broadband, local and long distance phone service and a large cable TV package for about $99 per month!
Have you tried actually SPEAKING to any of your service providers? I have. I, also, threatend to leave unless they lowered my rates. In each and every case, it worked! Honestly, you may have no idea how good of a deal you can get unless you threaten them with switching to someone else. If you're not the type to be confrontational, then have a friend do it.
Finally, I want to reiterate that there is indeed a program for mortgage relief, even for the unemployed. I wrote about a friend's experience with Wells Fargo's program a few days ago. Apparently, it's quite new and being offered by other banks as well. I don't think it warrants a huge explanation right here, but you won't be aware of it if you don't call your bank and ask whether such a program exists with them. This is so new, that it's possible your bank may not be offering it at the moment. The article I read that drew this to my attention was dated December 4th and was published in the "Sacramento Bee".
At this point, I think we can all have some real fun. I've put out some of my suggestions, so why don't you suggest yours? Therefore, all of us can benefit from each other! By the way, I do know of some other savings methods, but for the sake of brevity I'll stop here.
I would LOVE to hear any of your other money-saving ideas.
Marko's Take
Let's face it, a lot of us have, at one point or another, been subject to this condition. However, by sheer necessity, very few people can afford to now.
So, what I'd like to cover today are some "cures" that I've recently become aware of.
If you haven't already heard of this website, I highly recommend http://www.lowermybills.com/. The site is fantastic, especially when it comes to auto and homeowner's insurance. I'll give an example: I recently plugged in my auto insurance coverage details into GEICO's website. I also got one through "lower my bills". The latter was less than HALF! The site is also incredibly easy to use and you receive voluminous quotes.
As to grocery shopping, in my experience nothing beats the 99cent stores http://www.99only.com/. They have expanded at an incredible rate. The website, to which I have provided a link, searches for store locations. They're SO good, that during a recent trip to Ralph's, nearly all of the employees told me, off-the-record, that they shop at the 99cent stores!
Another phenonemal cure is the AT&T "U-Verse" program www.att.com/u-verse. It has an extremely attractive bundling of broadband, local and long distance phone service and a large cable TV package for about $99 per month!
Have you tried actually SPEAKING to any of your service providers? I have. I, also, threatend to leave unless they lowered my rates. In each and every case, it worked! Honestly, you may have no idea how good of a deal you can get unless you threaten them with switching to someone else. If you're not the type to be confrontational, then have a friend do it.
Finally, I want to reiterate that there is indeed a program for mortgage relief, even for the unemployed. I wrote about a friend's experience with Wells Fargo's program a few days ago. Apparently, it's quite new and being offered by other banks as well. I don't think it warrants a huge explanation right here, but you won't be aware of it if you don't call your bank and ask whether such a program exists with them. This is so new, that it's possible your bank may not be offering it at the moment. The article I read that drew this to my attention was dated December 4th and was published in the "Sacramento Bee".
At this point, I think we can all have some real fun. I've put out some of my suggestions, so why don't you suggest yours? Therefore, all of us can benefit from each other! By the way, I do know of some other savings methods, but for the sake of brevity I'll stop here.
I would LOVE to hear any of your other money-saving ideas.
Marko's Take
Tuesday, December 8, 2009
Mr. Gold's Wild Ride
It 's been a wild and volatile ride for Gold over the last several days. In fact, the most followed index of Gold stocks (HUI), has suffered a peak to trough drop of more than 15% in the last four days! As to the bullion itself, the drop has been a relatively meager 6.5%.
I wish to reiterate that my prior stated opinions regarding Gold and Silver have not changed one iota. I continue to maintain that not only has this sharp correction been long overdue, but actually NECESSARY to re-energize a market that was threatening to run away.
My own personal guesstimate is that Gold is in a temporary lull of some sort and preparing for a new launch upward. Obviously, I couldn't possibly predict as to how long this pattern will exist. However, I remain convinced that this sharp break is nothing but a mere holding pattern from which we will shortly see a resumption of the upward trajectory. And, with a level of vigor that we have yet to experience.
I can't guarantee any of this, since I'm far less wise than the market! And, realizing this, it would be both irresponsible and unethical for me to claim otherwise.
As I've pointed out repeatedly, physical gold is in a position of extreme short supply. So is Silver. I believe that there will come a day that this will be obvious. I, furthermore, maintain that BOTH Gold and Silver will be caught in what's known as a "short squeeze".
A "short squeeze" refers to a situation in which the seller is required to deliver, but cannot meet the delivery as a result of a shortage in their supply. For example, there are thousands of cases where shares are "sold short" and the sellers are incapable, or unwilling, to part with them. As a result, a veritable buying panic ensues as the short sellers are required to produce the "short sold" item within a very narrow window of time. This is a matter of law!
There exists a very HIGH level of short position in Gold, Silver and related mining stocks. The beauty of this, is that the bulk of these positions are now "under water" and must be honored. This means that a HUGE number of buyers will be FORCED to buy.
All of this points unequivicolly to one conclusion: Gold and Silver are destined to go much, much higher and very soon. All I can do is point out this extraordinary situation that I know exists and suggest that you act accordingly. In my opinion, those that act on this information NOW will be granted a once-in-a-lifetime opportunity.
In my most humblest of opinions, I pray that you consider my advice.
Your faithful servant.
Marko's Take
I wish to reiterate that my prior stated opinions regarding Gold and Silver have not changed one iota. I continue to maintain that not only has this sharp correction been long overdue, but actually NECESSARY to re-energize a market that was threatening to run away.
My own personal guesstimate is that Gold is in a temporary lull of some sort and preparing for a new launch upward. Obviously, I couldn't possibly predict as to how long this pattern will exist. However, I remain convinced that this sharp break is nothing but a mere holding pattern from which we will shortly see a resumption of the upward trajectory. And, with a level of vigor that we have yet to experience.
I can't guarantee any of this, since I'm far less wise than the market! And, realizing this, it would be both irresponsible and unethical for me to claim otherwise.
As I've pointed out repeatedly, physical gold is in a position of extreme short supply. So is Silver. I believe that there will come a day that this will be obvious. I, furthermore, maintain that BOTH Gold and Silver will be caught in what's known as a "short squeeze".
A "short squeeze" refers to a situation in which the seller is required to deliver, but cannot meet the delivery as a result of a shortage in their supply. For example, there are thousands of cases where shares are "sold short" and the sellers are incapable, or unwilling, to part with them. As a result, a veritable buying panic ensues as the short sellers are required to produce the "short sold" item within a very narrow window of time. This is a matter of law!
There exists a very HIGH level of short position in Gold, Silver and related mining stocks. The beauty of this, is that the bulk of these positions are now "under water" and must be honored. This means that a HUGE number of buyers will be FORCED to buy.
All of this points unequivicolly to one conclusion: Gold and Silver are destined to go much, much higher and very soon. All I can do is point out this extraordinary situation that I know exists and suggest that you act accordingly. In my opinion, those that act on this information NOW will be granted a once-in-a-lifetime opportunity.
In my most humblest of opinions, I pray that you consider my advice.
Your faithful servant.
Marko's Take
Monday, December 7, 2009
Baby Boomer Bust
While it may be poorly understood, a country's demographics are critically important to their fortunes. Most governments, including our own, are built on a series of ponzi schemes, meaning that growth is dependent on having the age structure pyramidically shaped. It's very positive when a small percentage of the population is old while a large percentage of the population is young.
The primary reason for the importance of demographics is what economists refer to as "household creation". Younger people tend to buy houses, buy appliances, buy cars and have children. On the other hand, older folks are savers, sell houses, sell appliances and DON'T have children.
"Household creation" is critical to driving growth via the multiplicative effect of the accumulation of possessions through "household savings" from employment income. While older folks are retired, living off savings and assistance such as medicare and social security, younger people are buying, saving (hopefully) and, in general, contribute to the major forms of assistance to the old, such as social security, medicare, disabiltiy and others.
So, as a country's population "grays", or grows older, it becomes at greater risk for economic problems. For example, Japan, which has, to my knowledge, the "grayest" of demographic structures, began its bust in 1990. And, it has yet to even recover. Europe and the U.S. came next as their demographics were a bit more favorable. In fact, I've long advocated the allowance of "illegal aliens", since they have helped keep the pyramid alive longer than would have been possible without them!!
Countries like India, which have booming populations are quite fine. However, my suspicion is that China, which has taken extreme population control measures, will NOT be fine for very long despite evidence, at the moment, to the contrary. Once these population control measures affect its pyramidal population structure, the pheonomenal growth experienced there will start to ebb and it will be subject to the very forces that are affecting the U.S. and Japan today.
The evidence I've cited is circumstancial, but I maintain it's WAY too coincidental to be false. The fact is, that nearly every country's fortunes are dependent on the relative number of old people to young people. While this may seem counter-intuitive, I assure you that it is indeed, quite true.
I hope you've enjoyed reading this essay as much as I enjoyed writing it. I love your comments, pro or con, and will continue to respond to each and every one of them.
Marko's Take
P.S. Given the wild action today in Gold, I'll be covering it tomorrow.
The primary reason for the importance of demographics is what economists refer to as "household creation". Younger people tend to buy houses, buy appliances, buy cars and have children. On the other hand, older folks are savers, sell houses, sell appliances and DON'T have children.
"Household creation" is critical to driving growth via the multiplicative effect of the accumulation of possessions through "household savings" from employment income. While older folks are retired, living off savings and assistance such as medicare and social security, younger people are buying, saving (hopefully) and, in general, contribute to the major forms of assistance to the old, such as social security, medicare, disabiltiy and others.
So, as a country's population "grays", or grows older, it becomes at greater risk for economic problems. For example, Japan, which has, to my knowledge, the "grayest" of demographic structures, began its bust in 1990. And, it has yet to even recover. Europe and the U.S. came next as their demographics were a bit more favorable. In fact, I've long advocated the allowance of "illegal aliens", since they have helped keep the pyramid alive longer than would have been possible without them!!
Countries like India, which have booming populations are quite fine. However, my suspicion is that China, which has taken extreme population control measures, will NOT be fine for very long despite evidence, at the moment, to the contrary. Once these population control measures affect its pyramidal population structure, the pheonomenal growth experienced there will start to ebb and it will be subject to the very forces that are affecting the U.S. and Japan today.
The evidence I've cited is circumstancial, but I maintain it's WAY too coincidental to be false. The fact is, that nearly every country's fortunes are dependent on the relative number of old people to young people. While this may seem counter-intuitive, I assure you that it is indeed, quite true.
I hope you've enjoyed reading this essay as much as I enjoyed writing it. I love your comments, pro or con, and will continue to respond to each and every one of them.
Marko's Take
P.S. Given the wild action today in Gold, I'll be covering it tomorrow.
Sunday, December 6, 2009
Gold Revisited: What To Do Now
On Friday, Gold fell by a whopping $46 per ounce, closing at $1,161! Silver fell by 34 cents, a loss of about 2 percent. I was besieged by calls from friends wondering just what was going on. I'll now tell you what I told them.
The action in Gold and Silver was terrific from a longer-term point of view. Here's why: Gold had risen virtutally non-stop for the last 26 days. So, when a temporary panic, like Friday occurs, the price action scares away holders referred to as "weak hands", or those most prone to panic. In their stead, the acquirers are referred to as being "strong hands", meaning that they are true long-run believers NOT prone to panic.
Ultimately, for a market to continue its march forward, the process of replacing "weak hands" with "strong hands" is quite positive and NECESSARY! It also serves as an opportunity to those who are long-term oriented with a terrific entry point.
The fundamentals for both Gold and Silver continue to improve. The U.S. Mint has stopped producing BOTH Gold and Silver Coins. In addition, there are rumors, which I believe are credible, that both China and India are looking to clean out the remaining bullion offered by the IMF, or International Monetary Fund.
That entity recently offered to sell 400 tonnes of Gold Bullion and most of it has already been eagerly grabbed. If the rest is indeed scooped up by any combination of countries, Gold will be in EXTREME short supply!
The shortage is now so great that those requesting physical delivery of Gold through an exchange called COMEX, are reporting delays of many weeks and even months to receive their promised deliveries. This is unprecendented! In fact, COMEX has declared that it will no longer guarantee delivery of physical bulllion and has opted to deliver bullion in the form of an exchange traded fund called GLD. The sheer ludicrousness of this, is that GLD is nothing but "paper gold" anyway.
As I've pointed out in prior blogs, GLD may very well be a "shell game". I can't prove it because I can't audit it. The bona-fide auditors of GLD are accountants and may not have the slightest idea of what to look for! For example, how on Earth would an accountant be able to spot "counterfeit" bullion which is becoming very common?
So, while Gold and Silver may bounce around a bit before charging higher, I believe we have been handed a "golden opportunity" to enter this market, which I adamantly maintain is in its infancy.
But, before you DO enter this market in whatever form, keep in mind that volatility will continue to grow as it did during the terminal phase of the internet bubble. This will make this market veritably impossible to trade. And, I suggest that at certain intervals, one takes some profit "off the table". Ideally, this could be accomplished in such a way that you only play with "house money". In other words, I strongly believe that one can quickly recoup all of one's initial investment PRIOR to the ultimate top and, therefore, eliminate entirely the risk of loss.
The reason THAT's important is that it tends to reduce one's level of stress and reduce the liklihood of emotionally driven decisions!
I hope you found this essay informative and useful. I greatly appreciate all of you that continue to read "Marko's Take" and especially those that make comments in order to spark a bona-fide discussion. If nothing else, "free speech" is a vital right we need to ensure.
Marko's Take
The action in Gold and Silver was terrific from a longer-term point of view. Here's why: Gold had risen virtutally non-stop for the last 26 days. So, when a temporary panic, like Friday occurs, the price action scares away holders referred to as "weak hands", or those most prone to panic. In their stead, the acquirers are referred to as being "strong hands", meaning that they are true long-run believers NOT prone to panic.
Ultimately, for a market to continue its march forward, the process of replacing "weak hands" with "strong hands" is quite positive and NECESSARY! It also serves as an opportunity to those who are long-term oriented with a terrific entry point.
The fundamentals for both Gold and Silver continue to improve. The U.S. Mint has stopped producing BOTH Gold and Silver Coins. In addition, there are rumors, which I believe are credible, that both China and India are looking to clean out the remaining bullion offered by the IMF, or International Monetary Fund.
That entity recently offered to sell 400 tonnes of Gold Bullion and most of it has already been eagerly grabbed. If the rest is indeed scooped up by any combination of countries, Gold will be in EXTREME short supply!
The shortage is now so great that those requesting physical delivery of Gold through an exchange called COMEX, are reporting delays of many weeks and even months to receive their promised deliveries. This is unprecendented! In fact, COMEX has declared that it will no longer guarantee delivery of physical bulllion and has opted to deliver bullion in the form of an exchange traded fund called GLD. The sheer ludicrousness of this, is that GLD is nothing but "paper gold" anyway.
As I've pointed out in prior blogs, GLD may very well be a "shell game". I can't prove it because I can't audit it. The bona-fide auditors of GLD are accountants and may not have the slightest idea of what to look for! For example, how on Earth would an accountant be able to spot "counterfeit" bullion which is becoming very common?
So, while Gold and Silver may bounce around a bit before charging higher, I believe we have been handed a "golden opportunity" to enter this market, which I adamantly maintain is in its infancy.
But, before you DO enter this market in whatever form, keep in mind that volatility will continue to grow as it did during the terminal phase of the internet bubble. This will make this market veritably impossible to trade. And, I suggest that at certain intervals, one takes some profit "off the table". Ideally, this could be accomplished in such a way that you only play with "house money". In other words, I strongly believe that one can quickly recoup all of one's initial investment PRIOR to the ultimate top and, therefore, eliminate entirely the risk of loss.
The reason THAT's important is that it tends to reduce one's level of stress and reduce the liklihood of emotionally driven decisions!
I hope you found this essay informative and useful. I greatly appreciate all of you that continue to read "Marko's Take" and especially those that make comments in order to spark a bona-fide discussion. If nothing else, "free speech" is a vital right we need to ensure.
Marko's Take
Saturday, December 5, 2009
Has A True Economic Recovery Actually Begun?
Right off the bat, I can tell you that I don't know. I've been as skeptical as anyone and said so in prior blogs. However, it appears POSSIBLE that we indeed are in the very early stages of some sort of recovery. But, the evidence remains a mixed bag. In addition, it's WAY too early to speculate as to how strong that recovery might become, if it's started at all.
On the positive side, a website called Shadow Stats (http://www.shadowstats.com/), which calculates various government-reported statistics and adjusts them for a variety of misleading alterations, has shown an actual slight "downtick" in the unemployment rate. Now, one month doesn't make a trend, but it IS the first time they show a drop since late 2007.
There is also the persistent strength in the stock market, which has historically led recoveries by 6 to 12 months. The stock market bottomed 9 months ago.
Another very reliable leading indicator is the money supply, which, thanks to Fed chief Ben Bernanke, has been exploding. Historically, high rates of growth in money supply have led to economic recovery within a period of between 6 to 18 months. All of the emergency stimulus and bailouts, which have caused the growth in money, began within the terminal months of the Bush administration, so they fall within the reliable historical precedent.
In addition, yesterday I became aware of a new program offered by certain banks of mortgage relief - EVEN FOR THE UNEMPLOYED! This was reported in an article by the Sacramento Bee, ironically titled "Mortgage relief program helps relatively few troubled homeowners". An unemployed friend of mine spent two hours talking to Wells Fargo, the holder of his mortgage, and found that this was indeed true. They went over his financial condition meticulously. They couldn't pre-qualify him for any immediate relief, but they are sending him a package requesting certain documents from which they can verify the information and consider the merits of his request.
Now, for the bad news! Retail sales remain DISMAL On "Black Friday", the day after Thanksgiving, one of the two most heavily trafficked shopping days of the year, Sacks reported a 26% DROP in year-over-year sales. Macy's and J.C. Penney also reported greater than estimated slides of about 6%. We don't yet know about Wal-Mart, as it has stopped reporting monthly sales statistics altogether! But, this bad news may be somewhat offset by some good news in online sales, which were UP 11% year-over-year.
According to the FDIC, six more banks were seized on Friday, with combined assets of $13.4 billion. And, as pointed out in recent blogs, the fortunes of states and municipalities continue to deteriorate.
So, the "recovery" theory remains quite speculative as the evidence is a mixed bag. However, I suspect that we will know the answer relatively soon. More evidence will arise after Christmas. Anecdotally, I know that most of my friends have, at most, a "token gift only" intention this holiday season.
Finally, the REALLY bad news is that any recovery is merely more evidence of a precursor to a vastly heightend level of inflation. Without exception, history shows that the "growth effect" of stimulus programs precedes the subsequent "price effect". And, as the "growth effect" tapers off, the "price effect" accelerates.
Therefore, we are sowing the seeds of an even greater crisis which is yet to be experienced.
I hope you found this essay useful, interesting and informative. I appreciate the rapidly growing readership and the questions, which I am delighted to answer.
Marko's Take
On the positive side, a website called Shadow Stats (http://www.shadowstats.com/), which calculates various government-reported statistics and adjusts them for a variety of misleading alterations, has shown an actual slight "downtick" in the unemployment rate. Now, one month doesn't make a trend, but it IS the first time they show a drop since late 2007.
There is also the persistent strength in the stock market, which has historically led recoveries by 6 to 12 months. The stock market bottomed 9 months ago.
Another very reliable leading indicator is the money supply, which, thanks to Fed chief Ben Bernanke, has been exploding. Historically, high rates of growth in money supply have led to economic recovery within a period of between 6 to 18 months. All of the emergency stimulus and bailouts, which have caused the growth in money, began within the terminal months of the Bush administration, so they fall within the reliable historical precedent.
In addition, yesterday I became aware of a new program offered by certain banks of mortgage relief - EVEN FOR THE UNEMPLOYED! This was reported in an article by the Sacramento Bee, ironically titled "Mortgage relief program helps relatively few troubled homeowners". An unemployed friend of mine spent two hours talking to Wells Fargo, the holder of his mortgage, and found that this was indeed true. They went over his financial condition meticulously. They couldn't pre-qualify him for any immediate relief, but they are sending him a package requesting certain documents from which they can verify the information and consider the merits of his request.
Now, for the bad news! Retail sales remain DISMAL On "Black Friday", the day after Thanksgiving, one of the two most heavily trafficked shopping days of the year, Sacks reported a 26% DROP in year-over-year sales. Macy's and J.C. Penney also reported greater than estimated slides of about 6%. We don't yet know about Wal-Mart, as it has stopped reporting monthly sales statistics altogether! But, this bad news may be somewhat offset by some good news in online sales, which were UP 11% year-over-year.
According to the FDIC, six more banks were seized on Friday, with combined assets of $13.4 billion. And, as pointed out in recent blogs, the fortunes of states and municipalities continue to deteriorate.
So, the "recovery" theory remains quite speculative as the evidence is a mixed bag. However, I suspect that we will know the answer relatively soon. More evidence will arise after Christmas. Anecdotally, I know that most of my friends have, at most, a "token gift only" intention this holiday season.
Finally, the REALLY bad news is that any recovery is merely more evidence of a precursor to a vastly heightend level of inflation. Without exception, history shows that the "growth effect" of stimulus programs precedes the subsequent "price effect". And, as the "growth effect" tapers off, the "price effect" accelerates.
Therefore, we are sowing the seeds of an even greater crisis which is yet to be experienced.
I hope you found this essay useful, interesting and informative. I appreciate the rapidly growing readership and the questions, which I am delighted to answer.
Marko's Take
Friday, December 4, 2009
Gold: The Ultimate Hedge Against The Unthinkable
At no other time in history, as far as I can recall, have more people been at risk for so many things. Among the risks are loss of valuables resulting from crime, loss of one's job, loss of one's house, loss of one's investments and, as a result, loss of one's mind!
Let's face it, things are downright scary and threaten to get much, much worse. I've already written about what I believe will be another banking crisis, Californias's severe problems, the increasing possibility of hyper-inflation and the inevitability of a currency crisis. How on Earth could a person handle all that?
The answer, of course, depends on which risks one is subject to and to what extent. It also depends on one's financial wherewithal, which, in many people's cases, is nil. However, virtually everyone, no matter how rich, is subject to a sudden currency crisis and the accompanying hyper-inflation. There have been many episodes of hyper-inflation in places such as Germany, Argentina, Zimbabwe, Mexico, Poland, Japan, the Soviet Union and many, many others.
Even people who are currently comfortably rich are far from safe. In Zimbabwe, the most recent and severe case of hyper-inflation I'm aware of, a person who had a fortune of 1BILLION Zimbabwe dollars in 2003 and had chosen to hide it "under the mattress", would today be worth the equivalent of LESS THAN ONE CENT!!
As to the risk of losing one's job, one approach which I have advocated to friends for years, is to take an off-setting financial position in a very similar company to the one employing them. Here's an example: let's say you work for Wells Fargo and fear losing your job for economic reasons. The wise thing to do would be to buy some amount in a security that gains, if indeed financial conditions do deteriorate. In so doing, the "loss" suffered by the termination of your employment would be, at least, partially offset by the GAIN in the financial position. Such securities are common and they are easy to trade. In fact, they are stocks known as ETFs, or Exchange Traded Funds.
As you have obviously inferred from the article's title, investing in Gold or high quality precious metal stocks, is, in my opinion, the BEST form of protection. Gold has historically been a TERRIFIC hyper-inflation hedge. It also tends to rise as other crises unfold, such as an outbreak of war. To be fair, it's far from bullett-proof, as there have been periods of creeping inflation where Gold has fallen, such as in the 1990's. But, I'm referring to the EXTREME types of risks we are simultaneously subject to today.
I believe that the sharp parabolic rise in Gold recently is YELLING that some very serious form of inflation and depreciation in the Dollar is very near. Thus, if you can afford it, I would advise at least some exposure to Gold. If you are short on funds, then use Silver, which as discussed previously, is even historically cheaper than the "yellow metal" and sells for 1/60th per ounce. In fact, Silver is in critically short supply and the U.S. Mint has entirely stopped producing one ounce Silver Eagles. I recently read that they are currently trading at a 30% premium on EBAY to their intrinsic value, based on their metallic content.
I hope you've found this article thought provoking and informative. Comments, pro or con, are always appreciated.
Marko's Take
Let's face it, things are downright scary and threaten to get much, much worse. I've already written about what I believe will be another banking crisis, Californias's severe problems, the increasing possibility of hyper-inflation and the inevitability of a currency crisis. How on Earth could a person handle all that?
The answer, of course, depends on which risks one is subject to and to what extent. It also depends on one's financial wherewithal, which, in many people's cases, is nil. However, virtually everyone, no matter how rich, is subject to a sudden currency crisis and the accompanying hyper-inflation. There have been many episodes of hyper-inflation in places such as Germany, Argentina, Zimbabwe, Mexico, Poland, Japan, the Soviet Union and many, many others.
Even people who are currently comfortably rich are far from safe. In Zimbabwe, the most recent and severe case of hyper-inflation I'm aware of, a person who had a fortune of 1BILLION Zimbabwe dollars in 2003 and had chosen to hide it "under the mattress", would today be worth the equivalent of LESS THAN ONE CENT!!
As to the risk of losing one's job, one approach which I have advocated to friends for years, is to take an off-setting financial position in a very similar company to the one employing them. Here's an example: let's say you work for Wells Fargo and fear losing your job for economic reasons. The wise thing to do would be to buy some amount in a security that gains, if indeed financial conditions do deteriorate. In so doing, the "loss" suffered by the termination of your employment would be, at least, partially offset by the GAIN in the financial position. Such securities are common and they are easy to trade. In fact, they are stocks known as ETFs, or Exchange Traded Funds.
As you have obviously inferred from the article's title, investing in Gold or high quality precious metal stocks, is, in my opinion, the BEST form of protection. Gold has historically been a TERRIFIC hyper-inflation hedge. It also tends to rise as other crises unfold, such as an outbreak of war. To be fair, it's far from bullett-proof, as there have been periods of creeping inflation where Gold has fallen, such as in the 1990's. But, I'm referring to the EXTREME types of risks we are simultaneously subject to today.
I believe that the sharp parabolic rise in Gold recently is YELLING that some very serious form of inflation and depreciation in the Dollar is very near. Thus, if you can afford it, I would advise at least some exposure to Gold. If you are short on funds, then use Silver, which as discussed previously, is even historically cheaper than the "yellow metal" and sells for 1/60th per ounce. In fact, Silver is in critically short supply and the U.S. Mint has entirely stopped producing one ounce Silver Eagles. I recently read that they are currently trading at a 30% premium on EBAY to their intrinsic value, based on their metallic content.
I hope you've found this article thought provoking and informative. Comments, pro or con, are always appreciated.
Marko's Take
Thursday, December 3, 2009
What Exactly Is The Federal Reserve?
The Federal Reserve or the "Fed", as it is more commonly known, was established in 1913. It acts as the central banking system for the United States. It is further divided into 12 district banks.
The Fed was created in order to accomplish the following:
- conduct the management of the nation's money supply with the objective of price stabilization
- supervise banking institutions in order to ensure their soundness
- maintain stability of the financial system
- provide financial services to a variety of financial entities, such as banks and the United States
Sounds like they've done one hell of a GREAT JOB!
In fact, prior to the Fed's creation, consumer prices remained virtually stable. Since 1913, the dollar has lost 97%, or so, of its value! Our banks are a complete mess BECAUSE of The Fed and its utter mismangement of interest rates and creation of asset bubbles. Maintain stability of the FINANCIAL SYSTEM? Uh-huh!
What most people DON'T realize, is that the Federal Reserve is very likely privately owned. Now, in fairness, I can't prove this because the Fed is shrouded behind an incredible cloak of secrecy. But, it CAN be proven that its 12 district banks are, as was the case in 1982, when a judge ruled so in "John L. Williams vs United States of America". So, it's logical to conclude that the Fed itself is privately owned.
The owners of the FED are believed to include some powerful entities, such as Goldman Sachs (GS). Isn't it a wee bit coincidental that employees of this firm are constantly given senior government positions, like head of the Treasury, while departing senior government advisors are given lucrative positions at GS?
Finally, its important to point out that the Federal Reserve refuses to be audited. In fact, Fed chief Ben Bernanke has repeatedly warned of "catastrophic consequences" if one were to be conducted. Given their obvious ineptitude, it isn't too tough to speculate as to why. The only conclusions I can draw are that either they are trying to cover up their ineptitude or, more likely, they have been involved in some nefarious activities.
Ron Paul has introduced legislation to audit the FED. This legislation has a very high level of bi-partisan support. However, the slowness of Congress and the unfortunate influence of a handful of congressmen has, so far, precluded the audit. Nonetheless, I believe it ultimately WILL occur.
Thanks for reading. I really appreciate comments, pro or con. And, I hope you found this informative.
Marko's Take
The Fed was created in order to accomplish the following:
- conduct the management of the nation's money supply with the objective of price stabilization
- supervise banking institutions in order to ensure their soundness
- maintain stability of the financial system
- provide financial services to a variety of financial entities, such as banks and the United States
Sounds like they've done one hell of a GREAT JOB!
In fact, prior to the Fed's creation, consumer prices remained virtually stable. Since 1913, the dollar has lost 97%, or so, of its value! Our banks are a complete mess BECAUSE of The Fed and its utter mismangement of interest rates and creation of asset bubbles. Maintain stability of the FINANCIAL SYSTEM? Uh-huh!
What most people DON'T realize, is that the Federal Reserve is very likely privately owned. Now, in fairness, I can't prove this because the Fed is shrouded behind an incredible cloak of secrecy. But, it CAN be proven that its 12 district banks are, as was the case in 1982, when a judge ruled so in "John L. Williams vs United States of America". So, it's logical to conclude that the Fed itself is privately owned.
The owners of the FED are believed to include some powerful entities, such as Goldman Sachs (GS). Isn't it a wee bit coincidental that employees of this firm are constantly given senior government positions, like head of the Treasury, while departing senior government advisors are given lucrative positions at GS?
Finally, its important to point out that the Federal Reserve refuses to be audited. In fact, Fed chief Ben Bernanke has repeatedly warned of "catastrophic consequences" if one were to be conducted. Given their obvious ineptitude, it isn't too tough to speculate as to why. The only conclusions I can draw are that either they are trying to cover up their ineptitude or, more likely, they have been involved in some nefarious activities.
Ron Paul has introduced legislation to audit the FED. This legislation has a very high level of bi-partisan support. However, the slowness of Congress and the unfortunate influence of a handful of congressmen has, so far, precluded the audit. Nonetheless, I believe it ultimately WILL occur.
Thanks for reading. I really appreciate comments, pro or con. And, I hope you found this informative.
Marko's Take
Wednesday, December 2, 2009
Gold $1200: Is It Too Late To Buy?
No! NOT EVEN CLOSE!! But that DOESN'T mean that the price of Gold won't be subject to sharp downward moves from time to time.
Now, I don't pretend to KNOW, with any degree of certainty, what level the "yellow metal" will ultimately reach, but we CAN review history to provide some guideposts.
One involves the ratio produced when the Dow Jones Industrial Average is divided by the price of Gold. Let's call it the DGR (Dow-Gold Ratio). Yesterday's ratio was 8.725 (10,471 divided by 1200). When the Dow is HIGH, while GOLD is LOW on a relative basis, this results in a HIGH ratio. Therefore, it's A LOW ratio that indicates that Gold is relatively expensive to stocks.
The DGR has bottomed at about 2.5 during the Great Depression and in 1900. However, the ratio fell to as low as 1 in 1980! At that time, Gold was in the terminal phase of a genuine mania. My belief is that history is in the process of repeating itself. Therefore, based on yesterday's Dow close of 10,471 a top for Gold could range from as low as $4,000 to $10,471! Of course, the market may decline or rise, so these are moving targets and certainly NOT guaranteed by any means.
Another approach would be to "inflation adjust" the last mania peak of $850 for Gold, which occurred in 1980. Using the calculations provided by the Bureau of Labor and Statistics, this prior peak would be equivalent to about $2,400 today. However, as discussed in prior blogs, the methodology for calculating the rate of inflation has been altered since then.
A man named John Williams, who has a fantastic website (http://www.shadowstats.com/), specializes in computing various statistics like inflation in a manner similar to that used in 1980. If HIS calculation of inflation is employed, the "inflation-adjusted" price of Gold projects a top of more than $7,000.
As to Silver, using Williams' number, its $50 peak, also reached in 1980, extrapolates to a top of over $400 per ounce. Or, more than 20 times the closing price yesterday!
It's vital that I re-iterate what I said yesterday in my essay regarding the possible reasons for the current strong stock market rally. No one truly knows where any market will ultimately peak or bottom, nor when. That is only known in hindsight and ususally well after the tops or bottoms occur. The most famous investor, Warren Buffett, avoids timing the market as much as possible and has accumulated his enormous wealth through a very simple "buy and hold" approach.
I hope you like this piece, find it informative and invite you to make comments, pro or con.
Marko's Take
Now, I don't pretend to KNOW, with any degree of certainty, what level the "yellow metal" will ultimately reach, but we CAN review history to provide some guideposts.
One involves the ratio produced when the Dow Jones Industrial Average is divided by the price of Gold. Let's call it the DGR (Dow-Gold Ratio). Yesterday's ratio was 8.725 (10,471 divided by 1200). When the Dow is HIGH, while GOLD is LOW on a relative basis, this results in a HIGH ratio. Therefore, it's A LOW ratio that indicates that Gold is relatively expensive to stocks.
The DGR has bottomed at about 2.5 during the Great Depression and in 1900. However, the ratio fell to as low as 1 in 1980! At that time, Gold was in the terminal phase of a genuine mania. My belief is that history is in the process of repeating itself. Therefore, based on yesterday's Dow close of 10,471 a top for Gold could range from as low as $4,000 to $10,471! Of course, the market may decline or rise, so these are moving targets and certainly NOT guaranteed by any means.
Another approach would be to "inflation adjust" the last mania peak of $850 for Gold, which occurred in 1980. Using the calculations provided by the Bureau of Labor and Statistics, this prior peak would be equivalent to about $2,400 today. However, as discussed in prior blogs, the methodology for calculating the rate of inflation has been altered since then.
A man named John Williams, who has a fantastic website (http://www.shadowstats.com/), specializes in computing various statistics like inflation in a manner similar to that used in 1980. If HIS calculation of inflation is employed, the "inflation-adjusted" price of Gold projects a top of more than $7,000.
As to Silver, using Williams' number, its $50 peak, also reached in 1980, extrapolates to a top of over $400 per ounce. Or, more than 20 times the closing price yesterday!
It's vital that I re-iterate what I said yesterday in my essay regarding the possible reasons for the current strong stock market rally. No one truly knows where any market will ultimately peak or bottom, nor when. That is only known in hindsight and ususally well after the tops or bottoms occur. The most famous investor, Warren Buffett, avoids timing the market as much as possible and has accumulated his enormous wealth through a very simple "buy and hold" approach.
I hope you like this piece, find it informative and invite you to make comments, pro or con.
Marko's Take
Tuesday, December 1, 2009
Exactly Why IS The Stock Market Rallying?
To he honest answer is that I don't know! But, I can think of several possibilites. In fact, NO ONE can know with any degree of certainty. The fact is that markets of all sorts do what they want and when they want. The reasons are only clear in hindsight. What I CAN do is review the potential reasons and make an educated guess.
One possibility is that the economy is indeed recovering. That's less ridiculous than it might seem at first. Given the level of stimulus, coupled with the high level of growth in the money supply, the economy typically would respond with an initial recovery. The unfortunate side effect of all the economic juicing is that eventually, prices start to rise at an accelerated rate. A good analogy would be a drug addict. At first the drug gives one a "high" but is followed by the inevitable withdrawal symptoms. The drug addict then builds a tolerance and needs MORE of the drug. Subsequently, the crashes become more painful.
Another reason for this rally may be inflation expectations. In Zimbabwe, which is just starting to recover from one of the most severe bouts of hyperinflation I've ever heard of, their stock market shot up exponentially. Zimbabwe's inflation rate was so high that it reduced the value of ITS dollar to 6 QUADRILLIONTHS of its value in 2003! However, in the U.S., in the late 1960's through 1982, a period of high inflation, stocks fell by an astonishing 90% from peak to trough, if the cumulative inflation was taken into account. That loss was virtually identical to that experienced during the Great Depression.
A third possibility is that we are in a temporary rally within a longer-term overall downtrend. This is a very common occurrence, especially after the severity of the accelerating panic that engulfed the market between the emergency takeover of Bear, Stearns in 2008 and the March lows of 2009. The market behaves like a pendulum. It frequently overshoots in one direction only to be followed by a sudden sharp about-face.
Finally, the idea that the market is manipulated by agents or proxies of the government is gaining acceptance. It has also been, to some extent, even admitted to, but only very recently. Until we get an audit of the Federal Reserve, we won't know with any certainty as to what extent this may or may not have occurred. It's clear the Federal Reserve DOES manipulate some markets such as interest rates and, therefore, the price of bonds.
They also manipulate the U.S. Dollar. But we don't know how far that manipulation extends, nor its overall effect on the stock market. If this indeed is true, it will ultimately fail because it can only work temporarily. We can be certain that whatever power the Federal Reseerve exerts, it must be limited. Otherwise, the market would have never crashed in the first place!
So, here's "Marko's Take" on all this! My own personal belief is that we are indeed in a temporary rally that will ultimately prove to be of limited duration and NOT make new highs for a long time. And it may be somewhat overdone with help from our friends and their proxies at the Federal Reserve. Even if I AM correct, I don't have any firm conviction as to how long it will last, nor how high it will ultimately go.
I'm always delighted by your comments, pro or con. If you like what you've seen, it would thrill me to have you email this piece, or any other of my pieces, to a friend or two.
Marko's Take
One possibility is that the economy is indeed recovering. That's less ridiculous than it might seem at first. Given the level of stimulus, coupled with the high level of growth in the money supply, the economy typically would respond with an initial recovery. The unfortunate side effect of all the economic juicing is that eventually, prices start to rise at an accelerated rate. A good analogy would be a drug addict. At first the drug gives one a "high" but is followed by the inevitable withdrawal symptoms. The drug addict then builds a tolerance and needs MORE of the drug. Subsequently, the crashes become more painful.
Another reason for this rally may be inflation expectations. In Zimbabwe, which is just starting to recover from one of the most severe bouts of hyperinflation I've ever heard of, their stock market shot up exponentially. Zimbabwe's inflation rate was so high that it reduced the value of ITS dollar to 6 QUADRILLIONTHS of its value in 2003! However, in the U.S., in the late 1960's through 1982, a period of high inflation, stocks fell by an astonishing 90% from peak to trough, if the cumulative inflation was taken into account. That loss was virtually identical to that experienced during the Great Depression.
A third possibility is that we are in a temporary rally within a longer-term overall downtrend. This is a very common occurrence, especially after the severity of the accelerating panic that engulfed the market between the emergency takeover of Bear, Stearns in 2008 and the March lows of 2009. The market behaves like a pendulum. It frequently overshoots in one direction only to be followed by a sudden sharp about-face.
Finally, the idea that the market is manipulated by agents or proxies of the government is gaining acceptance. It has also been, to some extent, even admitted to, but only very recently. Until we get an audit of the Federal Reserve, we won't know with any certainty as to what extent this may or may not have occurred. It's clear the Federal Reserve DOES manipulate some markets such as interest rates and, therefore, the price of bonds.
They also manipulate the U.S. Dollar. But we don't know how far that manipulation extends, nor its overall effect on the stock market. If this indeed is true, it will ultimately fail because it can only work temporarily. We can be certain that whatever power the Federal Reseerve exerts, it must be limited. Otherwise, the market would have never crashed in the first place!
So, here's "Marko's Take" on all this! My own personal belief is that we are indeed in a temporary rally that will ultimately prove to be of limited duration and NOT make new highs for a long time. And it may be somewhat overdone with help from our friends and their proxies at the Federal Reserve. Even if I AM correct, I don't have any firm conviction as to how long it will last, nor how high it will ultimately go.
I'm always delighted by your comments, pro or con. If you like what you've seen, it would thrill me to have you email this piece, or any other of my pieces, to a friend or two.
Marko's Take
Sunday, November 29, 2009
California's Crisis Deepens... Part 2
When the words bankruptcy and default come up in the context of California's financial crisis, they have the tendency to unnecessarily scare the heck out of many people. As we pointed out in Part 1 last Monday, the situation IS dire, in fact, VERY dire, but let's discuss what all this rhetoric really means.
First of all, a default differs materially from a bankruptcy. A default is the failure to make required debt payments on a timely basis or to comply with other conditions of an obligation or agreement. Bankruptcy, on the other hand, is defined as the condition of a legal entity that does not have the financial ability to pay their incurred debts as they come due. In the case of California, the use of "IOUs" has precluded, for the time being, a default.
Therefore, a series of defaults must occur BEFORE a bankruptcy. So, an entity can be in default WITHOUT being bankrupt, but it cannot be bankrupt without first being in default.
There is precedent for individual states to be in default. According to an article by William B. English titled "Understanding The Costs of Sovereign Default: American State Debts In the 1840's", 9 states went into default between 1841 and 1843. One of which was Florida, which was, at that time, considered to be a territory,
Of these defaulting states, 5 had already repudiated their debt in all or part by the end of the decade. The other 4 used a variety of factors to ultimately fix THEIR problems.
According to Mr. English, these debts are seen as "sovereign" debts, or debts of the COUNTRY. The Constitution currently precludes enforcement of these debt through lawsuits. Therefore, a State bankruptcy, for the time being, is IMPOSSIBLE.
California, despite its recent hardships, still has the 9th largest economy IN THE WORLD, if viewed on a stand-alone basis. Therefore, it is WAY too critical to the world to let the Golden State default, let alone go bankrupt.
The only conclusion one could reasonably draw, is that the frequent use of the words default and bankruptcy in the context of California is nothing more than an irresponsible scare tactic. Its likely intent is to bully the Federal Government into providing bailout funds sooner rather than later. Although, to be fair, California MAY be bordering on default status, since it IS issuing IOUs as discussed at length in Part 1 last week.
None of this is intended to suggest that a State default cannot happen, especially if California's worsening financial condition continues to deteriorate. State defaults have precedent, while State bankruptcies DO NOT.
Finally, I do appreciate feedback and comments, pro or con. I will continue to provide regular updates on California as they become material. In the meantime, I will cover Gold, Silver and other timely and relevant topics.
Marko's Take
First of all, a default differs materially from a bankruptcy. A default is the failure to make required debt payments on a timely basis or to comply with other conditions of an obligation or agreement. Bankruptcy, on the other hand, is defined as the condition of a legal entity that does not have the financial ability to pay their incurred debts as they come due. In the case of California, the use of "IOUs" has precluded, for the time being, a default.
Therefore, a series of defaults must occur BEFORE a bankruptcy. So, an entity can be in default WITHOUT being bankrupt, but it cannot be bankrupt without first being in default.
There is precedent for individual states to be in default. According to an article by William B. English titled "Understanding The Costs of Sovereign Default: American State Debts In the 1840's", 9 states went into default between 1841 and 1843. One of which was Florida, which was, at that time, considered to be a territory,
Of these defaulting states, 5 had already repudiated their debt in all or part by the end of the decade. The other 4 used a variety of factors to ultimately fix THEIR problems.
According to Mr. English, these debts are seen as "sovereign" debts, or debts of the COUNTRY. The Constitution currently precludes enforcement of these debt through lawsuits. Therefore, a State bankruptcy, for the time being, is IMPOSSIBLE.
California, despite its recent hardships, still has the 9th largest economy IN THE WORLD, if viewed on a stand-alone basis. Therefore, it is WAY too critical to the world to let the Golden State default, let alone go bankrupt.
The only conclusion one could reasonably draw, is that the frequent use of the words default and bankruptcy in the context of California is nothing more than an irresponsible scare tactic. Its likely intent is to bully the Federal Government into providing bailout funds sooner rather than later. Although, to be fair, California MAY be bordering on default status, since it IS issuing IOUs as discussed at length in Part 1 last week.
None of this is intended to suggest that a State default cannot happen, especially if California's worsening financial condition continues to deteriorate. State defaults have precedent, while State bankruptcies DO NOT.
Finally, I do appreciate feedback and comments, pro or con. I will continue to provide regular updates on California as they become material. In the meantime, I will cover Gold, Silver and other timely and relevant topics.
Marko's Take
Crime Wave Cometh
It actually already HAS in many places! The idea to write about crime occured to me a few days ago, when, while taking a long walk on a well known hiking trail near my house, I ran across a hysterical lady who's car had just been broken into. I've done this same hike at LEAST A THOUSAND times over the course of the nearly 20 years that I have lived in this same house. In that time, I have never seen this happen once.
What made this ESPECIALLY amazing, is that it was a gorgeous day brimming with people coming in and out of the entrance and very near to a busy boulevard. The victimized lady had had all her valuables taken. It was "prime time" for walks. The number of hikers were at their peak. As far as I could tell it was inconceivable that, given this traffic, no one saw the incident. If someone had, they sure as hell didn't report it! Finally, the victim's car was parked in the closest possible spot to the entrance gate. There were at least 50 cars parked there at that time.
In the last several months, I've heard anecdotally about an incredible amount of recent crime. Personally, I , MYSELF, have been robbed of a few valuables by someone who worked for me for years. The first time ever!! Also, a close friend of mine was robbed of HIS wine collection worth thousands by someone that apparently was working for HIM! It was the only time he had suffered such a fate. I've informally surveyed other friends and they tell me the same thing. Almost all of them had heard of recent, first-time victims, who live in "safe" areas.
Here in the U.S., comprehensive crime statistics are compiled by the Federal Bureau of Invesigation and Department of Justice. These numbers are only available through 2007. However, more recent
numbers ARE available, through a Reuters article. In January, the Police Executive Research Forum (PERF), a Washington-based law enforcement agency, reported increases in crime attributable to the current economic downturn among 44% of its agencies surveyed.
PERF also found that 6% of these police departments had already been saddled with budget cuts and that 63% were making plans to deal with expected FUTURE cuts. PERF spokesmen expected the crime rate to continue rising.
According to most sociologists, crime has risen in every recession since the 1950's, although that conclusion remains somewhat controversial.
The crime rise has not been limited to the United States. According to a very recent report by The Straits Times, a website sponsored by Singapore Press Holdings (http://www.straitstimes.com/), crime is on the increase in Great Britain as well, led by domestic burglaries. Bicycle thefts have risen year-over-year by 22%, while other forms of crime, such as fraud and violence, have actually fallen.
The phenemenon is apparently spreading world-wide with vigor. Severin Sorenson is President of Silkyur LLC, a security management consulting firm. Sorenson writes an occasional blog on crime-related issues (http://d2crimewave,com/). In a mid-March essay, he remarks that a world-wide "crime wave" has taken hold.
Sorenson reports that, as of the writing of his blog, increased crime waves were being experienced in a remarkable number of diverse countries, such as Argentina, Australia, Israel and Mexico. And, OF COURSE, the U.S. and U.K. Finally, he remarks that the situation is especially acute in developing nations.
I hope you manage to stay free of this wave of crime. It's important to note that the liklihood of crime depends on many factors, such as location and demographics. I live in Los Angeles, which is especially prone.
As always, you're comments are welcome, pro or con. Tomorrow, we'll publish Part 2 of "The California Crisis Deepens". So, we hope you'll tune in.
Marko's Take
What made this ESPECIALLY amazing, is that it was a gorgeous day brimming with people coming in and out of the entrance and very near to a busy boulevard. The victimized lady had had all her valuables taken. It was "prime time" for walks. The number of hikers were at their peak. As far as I could tell it was inconceivable that, given this traffic, no one saw the incident. If someone had, they sure as hell didn't report it! Finally, the victim's car was parked in the closest possible spot to the entrance gate. There were at least 50 cars parked there at that time.
In the last several months, I've heard anecdotally about an incredible amount of recent crime. Personally, I , MYSELF, have been robbed of a few valuables by someone who worked for me for years. The first time ever!! Also, a close friend of mine was robbed of HIS wine collection worth thousands by someone that apparently was working for HIM! It was the only time he had suffered such a fate. I've informally surveyed other friends and they tell me the same thing. Almost all of them had heard of recent, first-time victims, who live in "safe" areas.
Here in the U.S., comprehensive crime statistics are compiled by the Federal Bureau of Invesigation and Department of Justice. These numbers are only available through 2007. However, more recent
numbers ARE available, through a Reuters article. In January, the Police Executive Research Forum (PERF), a Washington-based law enforcement agency, reported increases in crime attributable to the current economic downturn among 44% of its agencies surveyed.
PERF also found that 6% of these police departments had already been saddled with budget cuts and that 63% were making plans to deal with expected FUTURE cuts. PERF spokesmen expected the crime rate to continue rising.
According to most sociologists, crime has risen in every recession since the 1950's, although that conclusion remains somewhat controversial.
The crime rise has not been limited to the United States. According to a very recent report by The Straits Times, a website sponsored by Singapore Press Holdings (http://www.straitstimes.com/), crime is on the increase in Great Britain as well, led by domestic burglaries. Bicycle thefts have risen year-over-year by 22%, while other forms of crime, such as fraud and violence, have actually fallen.
The phenemenon is apparently spreading world-wide with vigor. Severin Sorenson is President of Silkyur LLC, a security management consulting firm. Sorenson writes an occasional blog on crime-related issues (http://d2crimewave,com/). In a mid-March essay, he remarks that a world-wide "crime wave" has taken hold.
Sorenson reports that, as of the writing of his blog, increased crime waves were being experienced in a remarkable number of diverse countries, such as Argentina, Australia, Israel and Mexico. And, OF COURSE, the U.S. and U.K. Finally, he remarks that the situation is especially acute in developing nations.
I hope you manage to stay free of this wave of crime. It's important to note that the liklihood of crime depends on many factors, such as location and demographics. I live in Los Angeles, which is especially prone.
As always, you're comments are welcome, pro or con. Tomorrow, we'll publish Part 2 of "The California Crisis Deepens". So, we hope you'll tune in.
Marko's Take
Saturday, November 28, 2009
Are We Staring At ANOTHER Banking Crisis?
A few short days ago, Sheila Bair, the head of the Federal Deposit Insurance Corportion (FDIC), released details of the agency's quarterly report. The findings were downright alarming.
The FDIC operated "in the red" for only the second time in history, showing a quarterly loss of approximately $8 billion. The only other quarterly loss was in 1991 with a $7 billion shortfall. To be clear, this means that the amount "paid out" to depositors, along with the associated costs of doing so, were greater than the income earned from fees paid by banks for this insurance. The fees were raised last year and may have to be raised yet again.
Bair reports that, as of last quarter, it DOES still have $23.6 billion in cash, but private estimates project that ANOTHER $100 billion will be needed to be shelled out by 2013. Of course, at taxpayer expense!
This informtion isn't meant to scare you or anyone else. Fortunately, the FDIC has the ability, at its discretion, to access a substantial credit line from the Department of Treasury. Thus, as things stand, the deposit insurance of $250,000 per institution is not immeditely threatened.
The FDIC insures nearly 8,100 banks. Of these, they now consider 552, or about 7%, to be on its "problem list", up from 416 at the end of the second quarter. The "problem" institutions are not disclosed for fear of triggering bank runs, but their assets total nearly $350 billion!
Bank industry profits were $2.8 billion in the third quarter, which represents a stark reversal. However, losses are expected to resume in the 4th quarter as large write-offs are expected. Unfortunately, according to research by the Associated Press, 40% of the "profit" could be accounted for by a one-time mystery accounting gimmick.
The problems don't come close to ending there. The Office of Thrift Supervision, which monitors an entirely different set of institutions, reported that its "problem list" rose from 40 to 43 in the third quarter. Thrifts differ from banks in that they are subject to a requirement that mandates 65% of their lending be done in the form of consumer loans and mortgages. That requirement makes them heavily dependent on housing and unemployment.
Among the most disturbing aspects of the FDIC report was its disclosure of lending activity. Loan balances FELL by the largest amount in any quarter since the data began to be compiled in 1984: $210 billion or 3%. To be fair, a large part of the decline is a result of stricter regulations meant to ensure greater prudency.
Finally, the growing banking problems extend to Europe as well. Last week, as reported by Dominique Strauss-Kahn, chief of the International Monetary Fund, or IMF as it's more commonly known, HALF of the losses suffered by European banks could still be hidden in THEIR bank balance sheets.
I hope everyone had an enjoyable Thanksgiving. I have a number of topics I plan to cover in the upcoming days and weeks, including regular updates on Gold and Silver. And, this coming Monday, Part 2 of my essay on the California Fiscal Crisis will be published. I welcome your comments, pro or con and will respond to each and every one of them.
Marko's Take
The FDIC operated "in the red" for only the second time in history, showing a quarterly loss of approximately $8 billion. The only other quarterly loss was in 1991 with a $7 billion shortfall. To be clear, this means that the amount "paid out" to depositors, along with the associated costs of doing so, were greater than the income earned from fees paid by banks for this insurance. The fees were raised last year and may have to be raised yet again.
Bair reports that, as of last quarter, it DOES still have $23.6 billion in cash, but private estimates project that ANOTHER $100 billion will be needed to be shelled out by 2013. Of course, at taxpayer expense!
This informtion isn't meant to scare you or anyone else. Fortunately, the FDIC has the ability, at its discretion, to access a substantial credit line from the Department of Treasury. Thus, as things stand, the deposit insurance of $250,000 per institution is not immeditely threatened.
The FDIC insures nearly 8,100 banks. Of these, they now consider 552, or about 7%, to be on its "problem list", up from 416 at the end of the second quarter. The "problem" institutions are not disclosed for fear of triggering bank runs, but their assets total nearly $350 billion!
Bank industry profits were $2.8 billion in the third quarter, which represents a stark reversal. However, losses are expected to resume in the 4th quarter as large write-offs are expected. Unfortunately, according to research by the Associated Press, 40% of the "profit" could be accounted for by a one-time mystery accounting gimmick.
The problems don't come close to ending there. The Office of Thrift Supervision, which monitors an entirely different set of institutions, reported that its "problem list" rose from 40 to 43 in the third quarter. Thrifts differ from banks in that they are subject to a requirement that mandates 65% of their lending be done in the form of consumer loans and mortgages. That requirement makes them heavily dependent on housing and unemployment.
Among the most disturbing aspects of the FDIC report was its disclosure of lending activity. Loan balances FELL by the largest amount in any quarter since the data began to be compiled in 1984: $210 billion or 3%. To be fair, a large part of the decline is a result of stricter regulations meant to ensure greater prudency.
Finally, the growing banking problems extend to Europe as well. Last week, as reported by Dominique Strauss-Kahn, chief of the International Monetary Fund, or IMF as it's more commonly known, HALF of the losses suffered by European banks could still be hidden in THEIR bank balance sheets.
I hope everyone had an enjoyable Thanksgiving. I have a number of topics I plan to cover in the upcoming days and weeks, including regular updates on Gold and Silver. And, this coming Monday, Part 2 of my essay on the California Fiscal Crisis will be published. I welcome your comments, pro or con and will respond to each and every one of them.
Marko's Take
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