Sunday, February 28, 2010

Fourth Quarter GDP A 'Healthy' 5.7%... Or Was It?

As is frequently the case in government provided numbers, the headline numbers mask a much different story than that which is revealed by closer examination.  And, so is the case with the rather robust growth rate in the fourth quarter Gross Domestic Product (GDP).

Strained budgets in states and local governments don’t just affect the area residents — they can cause a drag on the whole U.S. economy.

Spending from state and local governments fell at a 2% annual rate in the fourth quarter, a revised (GDP) report showed today.  That’s much worse than the 0.3% drop in the original estimate, or the 0.6% decline in the third quarter.  And, upcoming quarters could show similarly bad numbers as revenues continue to fall.

According to ShadowStats (, the FED continues to act like a serious problem exists in the economy.  One example is the ongoing explosion in the money supply.

The St. Louis Fed’s Adjusted Monetary Base, seasonally-adjusted surged by $90 billion  (an annualized 198% pace of increase) in the two weeks ended February 24th, to a record $2.184 trillion.  The prior record high had been in the previous two-week period.

The monetary base — currency in circulation plus bank reserves — is the Fed’s primary tool for adjusting broad systemic liquidity, as measured by the money supply.

However, ShadowStats own monetary estimate of M3, the broadest form of monetary aggregate, is still on track for a deepening contraction.

As a result, according to ShadowStats, economic reporting increasingly will surprise the markets to the downside.  Recent data in weaker home sales, new jobless claims and consumer confidence have not been of substance, but negative market reactions to those numbers likely foreshadow significant negative market reaction as the general outlook shifts, from one of ongoing economic growth and recovery, to one of renewed recession.  Marko's Take agrees.

Nearly 6% growth is considered an outright economic boom, but few believe the current economy is booming, despite the revised report of official 5.9% annualized growth in the fourth-quarter GDP.  As discussed later, most of the reported growth was due to relatively stronger non-farm inventories, yet the inventory improvement is not supported by strong orders.

When consumption fails to support production and inventories build-up, manufacturers tend to cut back production and GDP falls.  This sets up renewed quarterly contractions beginning as early as the current quarter.  Such would be viewed popularly as a double-dip recession.

So while the talking heads tout the so-called recovery, readers of Marko's Take know that this way of thinking will be quite short-lived.  How can there be a real recovery until the unemployment rolls start coming down?

Think we're in a recovery?  TAKE ME ON!

Marko's Take

Episode 3 of our YouTube series is now posted here (  Please pay us a visit as more episodes, based on early blogs, will be added weekly, care of the Phoenix Film Group (

Saturday, February 27, 2010

Do Politicians Lie? (Sarcasm Intentional!)

People are starting to wake up.  Big brother is not only getting bigger, but much less brotherly!  56% of people questioned in a CNN/Opinion Research Corporation survey released Friday say they think the federal government's become so large and powerful that it poses an immediate threat to the rights and freedoms of ordinary citizens.  44%  of those polled disagree.

The survey indicates a partisan divide on the question: only 37% of Democrats, 63% of Independents and nearly 7 in 10 Republicans say the federal government poses a threat to the rights of Americans.

According to CNN poll numbers released last Sunday, Americans overwhelmingly think that the U.S. government is broken - though the public overwhelmingly holds out hope that what's broken can be fixed.  That hope is well-founded.  After all, "Marko's Take" has arrived on the scene (shameful immodesty intentional!).

Undoubtedly, the source of mistrust is the fact that our own government has turned lying into science.  Somewhere along the line, it became "acceptable" for our President's to lie.  Richard Nixon, Bill Clinton, George Bush and now Barrack Obama are phenomenally talented liars.  Unabashed liars!  And let's not forget Hillary Clinton.  Still ducking those bullets in Bosnia, eh, Ms. Madame Secretary of State?

I believe the public has had it with the BS fest out of our political leadership.  Yes, sometimes the truth hurts, but lying as standard operating procedure does NO ONE any good.

Perhaps the greatest source of pure fiction from Washington, D.C. are our reported economic statistics which have, over the years, gotten so contorted that they bear virtually no resemblance to the truth!  This process began in the Kennedy Administration and has crept to a level of greater and greater distortion ever since.

According to a fascinating article in Harper's magazine (, the story starts after the inauguration of John F. Kennedy in 1961, when high jobless numbers inconveniently interfered with the image of Camelot.

The result, implemented a few years later, was that out-of-work Americans who had stopped looking for jobs — even if this was because none could be found — were labeled “discouraged workers” and excluded from the ranks of the unemployed, where many, if not most, of them had been previously classified.

Lyndon Johnson, for his part, was widely rumored to have personally scrutinized and sometimes tweaked Gross National Product (GNP) numbers before their release.  And, by the 1969 fiscal year, Johnson had orchestrated a “unified budget” that combined Social Security with the rest of the federal outlays.  This innovation allowed the surplus receipts in the former to mask the emerging deficit in the latter.

Richard Nixon, besides continuing the unified budget, developed his own taste for statistical improvement. He proposed — albeit unsuccessfully — that the Labor Department, which prepared both seasonally adjusted and non-adjusted unemployment numbers, should just publish whichever number was lower.  In a more consequential move, he asked his second Federal Reserve chairman, Arthur Burns, to develop what became an ultimately famous division between “core” inflation and headline inflation.

 If the Consumer Price Index (CPI) was calculated by tracking a bundle of prices, so-called core inflation would simply exclude, because of “volatility,” categories that happened to be troublesome: at that time, food and energy.  Core inflation could be spotlighted when the headline number was embarrassing, as it was in 1973 and 1974.  Naturally, core inflation is more important since NO ONE buys Food or Energy (sarcasm intentional!).

In 1983, under the Reagan Administration, inflation was further massaged when the Bureau of Labor Statistics (BLS) decided that housing, too, was overstating the CPI.  The BLS substituted an entirely different “Owner Equivalent Rent” measurement, based on what a homeowner might get for renting his or her house. This methodology, simply sidestepped what was happening in the real world of homeowner costs.
Because low inflation encourages low interest rates, which in turn make it much easier to borrow money, the BLS’s decision no doubt encouraged, during the late 1980s, the large and often speculative expansion in private debt — much of which involved real estate and some of which went spectacularly bad between 1989 and 1992 in the savings-and-loan, real estate and junk-bond scandals. 

The distortional inclinations of the next president, George H.W. Bush, came into focus in 1990, when Michael Boskin, the chairman of his Council of Economic Advisers, proposed to re-orient U.S. economic statistics principally to reduce the measured rate of inflation.

His stated grand ambition was to move the calculus away from old methodologies toward the new emerging services economy.  Skeptics, however, countered that the underlying goal, driven by worry over federal budget deficits, was to reduce the inflation rate in order to reduce federal payments — from interest on the national debt to cost-of-living outlays for government employees, retirees and Social Security recipients.  Marko's Take agrees with the "skeptics"!

It was left to the Clinton Administration to implement these convoluted CPI measurements, which were re-iterated in 1996 through a commission headed by Boskin and promoted by Federal Reserve Chairman Alan Greenspan.

In 1994, the BLS further redefined the workforce to include only that small percentage of the discouraged who had been seeking work for less than a year.  The longer-term discouraged — some 4 million U.S. adults — fell out of the main monthly tally.  Some now call them the “hidden unemployed.”

For its last 4 years, the Clinton Administration also thinned the monthly household economic sampling by one sixth, from 60,000 to 50,000, and a disproportionate number of the dropped households were in the inner cities.  The reduced sample is believed to have reduced black unemployment estimates and eased worsening poverty figures.

Are you one of those people that shrugs their shoulders and says "All politicians lie"?  I heard that one enough during the Clinton years.  If you think this behavior is in any way shape or form acceptable,

Marko's Take

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Friday, February 26, 2010

Government Sachs: How Big A Menace Is It?

Goldman Sachs (GS) is the firm that everyone LOVES to HATE and for good reason.  Not only does this firm bear unreasonable power in the world financial structure, it is so intertwined with the U.S. Government, that the term "Government Sachs" has now emerged in our lexicon.

To be fair, GS is the premiere investment banking firm.  But, to be honest, did they achieve that position fairly?   Marko's Take says NO!

Most obviously is the revolving door between high level GS executives and high level government posts.  A partial list includes the following:  Rahm Emanuel, Jon Corzine, Hank Paulson, Tim Geithner, Neil Kashkari, key Treasury players Dan Jester, Steve Shafran, Edward C. Forst, and Robert K. Steel.  The list goes on and on.

The conflict of interest is OBVIOUS and very ominous. 

But, the conflicts don't stop there.  A senior Goldman Sachs executive sent an e-mail message to clients recently disclosing that the firm’s Fundamental Strategies Group might have shared investment ideas with the firm’s proprietary trading group, or some clients before sharing them with others.

The e-mail message, obtained by DealBook, demonstrates the various conflicts that Goldman and other firms face in balancing the interests of its various clients and its own trading operation.

“We may trade, and may have existing positions, based on trading ideas before we have discussed those trading ideas with you,” Thomas Mazarakis, head of Goldman’s Fundamental Strategies Group, wrote (

Marko's Take?  What a great bunch of guys!

GS is also believed to be one of, if not, THE CONTROLLING OWNER of the FED!

Still not enough?  A highly secretive entity, known as the "Plunge Protection Team" (PPT), is also believed to be directed by GS.  The Working Group on Financial Markets, known colloquially as the PPT, was created in 1988 by Ronald Reagan, in response to the Black Monday stock market crash in 1987.  Their operations have always been shrouded in secrecy, with a Washington Post article from 1997 writing that the group aims to prevent the "smoothly running global financial machine" from locking up.

If GS in indeed involved in market operations, that would explain the firm's enormous profitability which emanates primarily from its trading book, not lending as its bank mandate would suggest.  Nothing like having a little inside information, trading ahead of clients and minting money through the FED (sarcasm intentional)!  Nothing like having all your executives get cushy government jobs when they get tired of $50 million bonuses (sarcasm intentional)!

Until the FED's, Goldman's and the Treasury's surreptitious activities are disclosed, reviewed and audited will we know the real truth.  However, the circumstantial evidence is quite damning.  Marko's Take?  Let's put these folks under the microscope and, if necessary,  CLEAN HOUSE!

Think I'm being unfair to big ole Goldman Sachs?  TAKE ME ON!

Marko's Take

Please visit our new YouTube site at  We have a total of 8 episodes planned with a new segment, "What Exactly Is Peak Oil?... Part 2", to be released shortly.

Keep the faith...the revolution has begun and we WILL take the country back!

Thursday, February 25, 2010

California Crisis Deepens... Part 7

California's plan to raise $2 billion in General Obligation bonds has been temporarily shelved as a result of ongoing legislative hurdles.

The bond sale was scheduled to begin next week and price on March 4, but state Treasurer Bill Lockyer postponed the deal for a week.  He said the delay was required because the state legislature hadn't voted on a cash-management bill that would make California debt more appealing to investors and ratings firms.

California has the lowest credit ratings of any state.  Moody's Investors Service rates the state's general-obligation bonds Baa1, Standard & Poor's ranks them A-minus and Fitch Ratings rates them BBB.

But John Flahive, director of fixed income at BNY Mellon Wealth Management, said that because of the delay and the size of the deal, the bonds may come around 20 basis points over where existing debt trades, which means the yields would be in the range of 5.875% to 6%.

Meanwhile, Governor Schwarzenegger continues to search for ways to close the budget gap which is projected to be $20 billion.

In low-key votes, lawmakers slashed nearly $1 billion from the state’s prison system, chiefly from inmates’ medical care and approved a $540 million reduction in state workers’ paychecks.  The state Senate had approved those measures last week and on Monday they passed the Assembly on party-line votes.

Any tax increases remain "off the table".  A spokesperson for Schwarzenegger said the Governor “would veto any plan that includes suspending a tax break.”

Especially hard-hit thus far has been the California State educational system.  The Cal State University system, that great bridge between working-class California and its middle class, is under threat.  Tuition has been going up at a head-spinning rate -- 32% this year!  Faculty is being cut, financial aid is disappearing and many key classes are impossible to get.

If that weren't enough, the 2008 collapse of Lehman Brothers has hit some communities especially hard.
San Mateo, a scenic swath of peninsula between the Pacific Ocean and San Francisco Bay, saw $155 million evaporate when Lehman Brothers went bankrupt in September.  On top of deep budget cuts brought on by California's fiscal crisis, the loss on Lehman securities means San Mateo's 735,000 residents are taking a hit.

Public schools here have laid off dozens of teachers and delayed or canceled renovations.  Local community colleges are slashing classes and scrapping new facilities, even as enrollment surges because of the bad economy.  The county trimmed its commuter rail service and shelved plans to build a new women's jail to alleviate overcrowding.

The biggest factor behind San Mateo's trouble is California's spending cuts.  But its Lehman losses have made a bad situation worse.

San Mateo County's loss was the biggest of any municipality.  Under state rules, the county government, city governments and area school districts hold their operating funds, reserves and bond proceeds together in an investment pool that lost about 6% of its value when Lehman went under.

The investment pool owned highly rated Lehman bonds and notes, which currently trade around 20 cents on the dollar.  Any recovery from the bankruptcy process will take at least another year.  A recovery of 20 cents on the dollar would leave the pool with a loss of roughly $125 million.

By far the biggest hindrance toward a solution is the stalement between Governor Schwarzenegger, who adamantly opposes tax increases and the Democratic-controlled legislature, which is equally adamant in its opposition to further spending cuts.  It appears that this stalement will keep California "on the brink" until the very critical 2010 election tips the scales either more toward Republicans or Democrats.

As the world's ninth largest economy, California's fortunes are critical to the United States and the entire world.  Sadly, the crisis threatens to get worse unless unemployment should miraculously diminish or an economic recovery gains momentum.  Readers of "Marko's Take" know that neither of these outcomes is likely in the near future.  Thus, California's prospects are likely to reach a crisis level by the end of the year.

Think I'm off the mark?  TAKE ME ON!

Marko's Take

Our second installment on YouTube, "What Exactly Is Peak Oil?.. Part 1" is now posted at  Please stop in, feel free to leave comments and enjoy the excellent film-making care of Phoenix Film Group.  (

Part 2 of the "Peak Oil" series will be posted in the next 48 hours!

Wednesday, February 24, 2010

Banks Leading The Economy Off The Cliff!

It's awfully hard to like banks.  Let's face it:  they charge us absurd rates on credit cards, are unwilling to lend to even the best of credits and pay themselves ever so handsomely despite being at the forefront of the economic debacle known as 2008-2009.  Leading bankers themselves are smug, out-of-touch with America and in cahoots with the Administration.  It's hard not to want to see them fail miserably!

Unfortunately, we NEED healthy banks.  We NEED good banks.  No economy can prosper without a healthy financial sector.  And sadly, we don't have one.  In fact, the banking sector is quietly deteriorating further despite all the machinations of the Federal Reserve (FED).  The trend is downright alarming AND ominous!

The number of problem banks in the US continued to soar in last year’s fourth quarter, hitting their highest level since 1993, according to a regulatory report released on Tuesday(

The findings by the Federal Deposit Insurance Corp. (FDIC) suggest that, although the US economy is on the mend, the financial industry, bedevilled by souring residential and commercial real estate loans, will take longer to recover.

The FDIC said 702 banks were considered troubled at the end of 2009, up from 552 three months earlier. Problem assets totalled $402.8 bilion in the final period, compared with $345.9 billion in the third quarter.  By contrast, Lehman Brothers listed $639 billion in assets at the time of its bankruptcy filing in September 2008.

No longer confined to Wall Street, the financial crisis has cascaded over to regional and community banks that are feeling a disproportionate amount of the pain.  “The great recession has very much become a Main Street problem,” said Richard Brown, the FDIC’s chief economist.

Loan losses jumped for the 12th consecutive quarter to total $53 billion, an increase of 37% over the year-ago period.  On an annualized basis the rate of losses accounted for in the quarter was the highest in more than two decades.

Losses rose in all significant categories, including residential mortgage loans and credit card debt.  One of the fastest growing categories for uncollectable debt was commercial real estate.

Bank lending, the lifeblood of the U.S. economy, is falling at a record pace.  U.S. banks  last year posted their sharpest decline in lending since 1942, suggesting that the industry's continued slide is making it harder for the economy to recover  (

While top-tier banks are recovering at a faster clip, the rest of the industry is still suffering, according to a quarterly report from the FDIC.  Banks fighting for survival, especially those plagued by losses on commercial real estate, are less willing to extend loans, siphoning credit from businesses and consumers.

Besides registering their biggest full-year decline in total loans outstanding in 67 years, U.S. banks set a number of grim milestones. According to the FDIC, the number of U.S. banks at risk of failing hit a 16-year high at 702.  More than 5% of all loans were at least three months past due, the highest level recorded in the 26 years the data has been collected!  And the problems are expected to last through 2010!

The struggling U.S. banking industry remains a problem for policy makers eager for banks to lend again. Lawmakers on Capitol Hill and administration officials have pushed banks to lend, particularly in light of the billions in taxpayer aid injected into the financial industry over the past two years.  Banking groups and their members counter that they're under pressure from regulators to be more prudent and that demand from struggling consumers and businesses isn't there.

Some small-business owners say they could expand if they could just get a loan.  Nick Sachs, president of Homewatch CareGivers Cincinnati-Metro, says he's been asking banks for a loan of $150,000 to $250,000 since 2008.  He says his home-health-care franchise could hire 20 to 30 aides and even one or two office assistants.

Most surveys suggest a combination of factors are at play.  A January survey by the FED of senior loan officers showed banks have slowed their efforts to tighten lending standards, but have not backed off the more stringent loan terms they put in place over the past two years.  The same report, however, also showed that demand for loans from businesses and consumers continues to fall.

Bankers, on the other hand, say creditworthy borrowers are hard to come by.  Fifth Third Bancorp recently extended a $3.5 million line of credit to Chicago-based One Hope United after the state of Illinois, beset by a budget crisis, delayed payments to the child-and-family-services provider.

Clearly, we have a so-called "vicious circle" problem.   The poor condition of borrowers coupled with the poor condition of the economy are making it tougher for banks to lend.  The unwillingness of banks to lend, on the other hand, is contributing to the poor economy and resulting poor credit-worthiness of potential borrowers.  Sadly, before anyone in Washington, D. C., figures this out, we'll be well on our way into the Second Dip of the Double-Dip Hyper-Inflationary Depression.

Disagree?  Think I'm being unfair to Bankers?  TAKE ME ON!

Marko's Take

Our second episode on You Tube is now up.  You can see it by clicking here:  Hope you like it!  We will have episodes weekly for the forseeable future!

Tuesday, February 23, 2010

Last Stop On The Gold Train... All Aboard!

After a strong burst last week, Gold has done what would be expected:  pull back before launching with a vengeance.  The charts look great!  As far as the metal itself goes, it is merely pausing and gathering strength after a huge break-out last week.

Gold and Silver mining stocks still appear sluggish.  However, a look at their charts indicates a VERY bullish pattern known as a "declining pennant".  Such a pattern is formed when an index, in this case the HUI or "Gold Bugs" index, makes a series of lower highs and lower lows forming a channel with a negative slope.  Once the HUI breaks above the upper channel, we will be off and running!  The upper bounds of the channel were tested last week and it is typical to bounce back a bit before bursting through.  That's where we are today.

Once this channel is broken, which I expect in no more than 3 days, GOLD WILL NEVER LOOK BACK!

If, for some reason, you've STILL not gotten in, this may be your last ideal entry point.  Once the market goes parabolic, it will be impossible to find a good spot to get in without being whipsawed.  I know, since I witnessed the internet bubble in 1998-2000 as a hedge fund manager.  I saw how it wreaked havoc with me and others trying to ride the bronco bull.

I will re-iterate a few things about investing in Gold.

1. Avoid the Exchange Traded Fund (ETF) with the symbol GLD.  If you want a bona-fide metals backed fund, try CEF, which is roughly comprised of 55% Gold and 45% Silver.

2.  If you have to buy ONE stock, make it GDXJ, another ETF, which is a basket of 40 individual Gold and Silver mining companies and will get you instant diversification.   I've mentioned ECU Mining in a prior essay, and if you're looking for a real potential home run, check it out (

3. Expect increasing volatility on the way up.  As the public enters, the day-to-day swings will turn your stomach.

4. Employ the trading strategy I recommended in an earlier blog to preserve your profits and reduce your stress (

5.  Be aware that the upcoming mania will last AT LEAST a year and possibly as long as 5 more years.  Take profits from time to time as suggested in point 4, but hang on until Gold AT LEAST crosses $2,000.  It may even rise to $5,000, which is the ultimate target of  "Marko's Take".

6   Employ other inflation-proofing techniques in the context of your lifestyle and other investing(

This may prove to be a life-changing event for anyone poised to take advantage of it.  I expect to see a whole new class of millionaires created from the upcoming mania.  Let's be smart about it and not suffer the fate of the dotcom millionaires who made and then LOST EVERYTHING!

Good luck!  Comments?  TAKE ME ON!

Marko's Take

Our second segment on YouTube will be posted sometime today, Tuesday, February 23rd, 2009.  To access the site click here:

Monday, February 22, 2010

Online Sales Remain Strong... But For How Long?

During the incredibly important Christmas and December retail sales periods, the main bright spot was online sales (  According to CNN Money, retail sales rose in January, driven by strength in discount retailers and online merchants, according to a government report Friday.

The Commerce Department said total retail sales edged up 0.5% to $355.8 billion last month, compared with December's revised decline of 0.1%.  Economists surveyed by had anticipated that January sales would grow 0.3%.

The year-to-year increase was more impressive.  January retail sales jumped 4.7%, compared to the same month in 2009.

"This is decent news considering just how bad the labor market is," said Adam York, an economist at Wells Fargo.  "We had gains in most of the categories and the real strength was in general merchandise sales, so it looks like the consumers are just out there shopping again."

"We're looking for fairly modest gains in personal consumption and sales, but consumers are not going to come roaring back," he said. "With the weakness in the labor market, it's going to be difficult to see a sustained growth path in consumption."

However, similar numbers for the U.K, just reported, are bleak.

Data just released shows that, even the strong online sector is now faltering.  This data, while from the U.K., augers poorly for the American online sector.

Bad weather in January was a factor in the drop in post-Christmas monthly sales, which saw a decrease of 22%!  Bad weather is a typical excuse for bad sales!

Online shopping showed its slowest annual growth in nearly 10 years of the industry's index, with sales last month up just 5% on January 2009 (

Companies with only an online presence made 2% less money than 12 months before, according to the latest figures.  Those with a high street, direct mail or catalogue order busines as well saw sales rise by 10%. The traditional post-Christmas monthly sales drop from December to January was also far worse online than normal, with a 22% decrease.

According to the Financial Times, the annual growth rate of internet shopping has fallen to its lowest level since records began, according to a survey published over the weekend.

A recent survey showed that sales online rose by only 5% in January compared with the same month in 2009.  UK consumers spent £4.3billion with internet sites last month, as the rate of monthly growth declined by 22% compared with December's figure.

Given the stubbornly high level of unemployment domestically, it stands to reason that the surprising strong online sales figures from the U.S. will follow those in Great Britain.  While our economy has all the "appearances" of a recovery, there is no reason to believe, without a marked improvement in employment, that the bounce in retail and online sales will prove to be much more than temporary.

Care to weigh in?  TAKE ME ON!

Marko's Take

Our next segment of "Marko's Take TV" will be up shortly...
We will debuting the first four episodes on February 28th, at 9PM Pacific Time at Dimples, 3413 West Olive Ave, Burbank, CA 91505.  Hope to see you there!

Tomorrow, we'll re-visit Gold!

Sunday, February 21, 2010

Bank Lending Plummets: Further Evidence Of Economic Downturn Ahead!

In order for an economy to grow, access to the capital markets is essential.  In the mid-2000's, banks were tripping all over themselves to lend money to anyone for any half-cocked reason.  The penduluum has swung to the other side.  Bank lending standards have become so tight that they are certain to choke off hope of an economic recovery.

David Rosenberg from Gluskin Sheff said lending has fallen by over $100 billion since January, plummeting at an annual rate of 16%!  “Since the credit crisis began, $740 billion of bank credit has evaporated.  This is a record 10% decline,”  (

Mr. Rosenberg said it is tempting fate for the Fed to turn off the monetary spigot in such circumstances.  “The shrinking in banking sector balance sheets renders any talk of an exit strategy premature.” 

So far, this year alone, U.S. bank-lending has fallen by over $100 billion – from the extremely depressed levels of 2008.  Thus, not only is U.S. bank-lending falling at the fastest rate in history, but it is doing so from a level which was already far lower than bank-lending before Wall Street destroyed the U.S. economy.  So what else is new?

The problem is not soley the result of bank stinginess.  As the result of the banks' profligacy in the mid-2000s, new regulations have drastically tightened lending standards, thus precluding loans that might have been made otherwise.  In addition, credit demand has plummeted.

An important question is "to what extent is the decline due to tightened lending standards rather than falling demand?"   Demand shortfalls may be a key component at this point; while the National Federal of Independent Business continues to warn of tight credit conditions.  Its latest discussion of small business conditions indicated that the biggest problem facing small employers is a "shortage of customers".

Without a functional and vibrant credit market, no economic recovery is possible.  In fact, the latest trends point to an imminent second dip in the "Double-Dip Hyper-Inflationary Depression".

Unfortunately, the unavailabity of credit for small business is the most significant aspect.  Small business, especially those companies under 100 employees, have proven to be the engine of growth.  By cutting off their lifeblood, ongoing high unemployment is assured.  And, as a result, we can expect absolutely NO economic recovery.

Disagree?  Agree?  TAKE ME ON!

Marko's Take

Please visit our new video blog site:

Saturday, February 20, 2010

States In Big Trouble: Tax Refunds To Be Delayed!

Recently, the State of New York announced  that it is considering delaying state tax refunds in order to help it cope with growing budget problems.

Governor David Patterson, facing dismal approval ratings, has warned that the $8.2 billion budget gap may force the state to postpone the tax refunds in order to avoid going bankrupt, unless it passes a budget by its April 1 deadline.

“We can only do this to stop the state from going bankrupt, but there are procedures we will have to take if the legislature doesn’t act, and close this deficit with real and recurring deficit reductions, not made-up, phony revenue enhancers that don’t really exist,” he said, according to local radio station WRVO’s Web site.

Patterson told another radio station, WOR, that taxpayers should blame the legislature for the budget woes. He claimed the legislature refused to cut spending and resolve the budget deficit.

New York is one of many states facing budget shortfalls this year due to the recession and plummeting tax revenues.  Last year, California also announced it would be forced to delay income tax refunds, but the state eventually issued them.

New York is hardly alone.  Hawaii's Department of Taxation recently said it will begin issuing the checks in July, but it could be that some refunds won't get sent out until late summer.

The delaying of refund checks is allowed by state law and is being used this year as Gov. Linda Lingle looks for ways to ease an expected $721 million revenue shortfall in the year that ends June 30.

Lingle is pushing some costs into the next fiscal period, which begins in July.  Several states, including California, Missouri and Kansas, last year used the tactic of delaying refunds to help with their financial problems.

Also in trouble is North Carolina.  Its Department of Revenue is now in its second year of delaying refunds and blames the delay on slow collection of income taxes.

The trend is disturbing enough.  We ARE in a recovery after all, aren't we?  What on earth will happen when the economic downturn asserts itself with a vengenace?

Comments?  Disagree?  Agree?  TAKE ME ON!

Marko's Take

Our next episode on YouTube, "What Exactly Is Peak Oil... Part 1" will be added to the site shortly.  To visit the site, click here:

Friday, February 19, 2010

Fed Raises Rates... Or Did They?

In a move that had already been well telegraphed, the Federal Reserve (FED) raised the discount rate from .50% to .75%.  Is this the beginning of a new tightening cycle?  NO!  What readers of "Marko's Take" already know is that any major upward move in rates is not in the cards for 2010. 

Reason 1 is the size of the National Debt, which had its ceiling recently raised by Congress to in excess of $14 Trillion!  A 1% increase in rates translates into an additonal $140 billion per year increase in our budget deficit!   Reason 2 is that the economy is NOT in a recovery, but slipping into the second dip of this "Double Dip Hyper-Inflationary Depression".  Any material increase in rates is just not going to happen.

Furthermore, for any "tightening" to occur, the FED must raise rates FASTER than the increase in inflation.  The "real" interest rate is defined as the prevailing interest rate MINUS the ongoing inflation rate.  Historically, real rates have been slightly positive - about 2%.  However, at the present, real rates are NEGATIVE and given the latest release in the Producer Price Index (PPI), a meager .25% increase in rates still keeps the FED way behind the curve.

Negative real rates were a FED policy blunder in the 1970's.  The result was Stagflation and a mania in Gold.   Fast forward to the 2010's and HISTORY WILL REPEAT!

The FED's move may also have been a token measure to appease China, which has been vocal in its displeasure with U.S. monetary policy and the debasement of the dollar.

Foreign owners of US government debt reduced their holdings by the largest monthly amount ever in December, with China offloading so many Treasury securities that it is no longer the largest foreign holder! Total foreign holdings of treasury securities plunged by $53 billion in December.  China led the sell-off, reducing its holdings by $34 billion, while Japan increased its holdings by $11 billion to become the new largest foreign holder of Treasuries.

China has increased their holdings of U.S. Treasuries eight-fold over the past decade, so this latest dumping is relatively small in the grand scheme of things.  It is newsworthy only in the fact that China is no longer the largest holder of Treasuries and this could be the beginning of a much larger trend to divest of U.S. debt.

The discount-rate move didn't affect the FED's main policy tool, the federal-funds rate, a FED-influenced rate that banks charge each other on overnight loans.  That benchmark rate  filters through to other market rates.  The FED on Thursday reiterated the fed funds rate will remain near zero for an "extended period," which means at least a few more months.

So, while the FED has taken this rather minor move, the big picture remains unchanged.   The FED is far more concerned about NOT derailing the incipient "recovery" it maintains is taking place.   What recovery?

Love the FED?  Hate the FED?  TAKE ME ON!

Marko's Take

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Thursday, February 18, 2010

Is Obama's Stimulus Plan Working?

According to the most modest man on Earth, YES!  According to a recent Wall St. Journal Poll, nearly 60% of the respondents gave our President's handling of the stimulus program a grade of F.  Marko's Take agrees.

Since Mr. Humble doesn't read Marko's Take, let's let him enjoy his world of fanstasy.  Since we live in the real world, let's take a hard look at the facts.

According to a Wall Street Journal article, the Obama administration's economic-stimulus program has delivered about a third of its total $787 billion budget during its first year, much of that to maintain social services and government jobs and to provide tax cuts for workers. Now, the pace and direction of stimulus spending are about to change

Infrastructure spending is set to step up in the second year of the stimulus program, which should mean more money flowing to private-sector employers.  Still, economists say that won't likely have a big effect on the unemployment rate, which most say ought to continue a slow decline as the broader economy recovers.

Most of the spending, thus far, has gone to enhance government, which we KNOW is a GREAT way to
stimulate the economy (sarcasm intentional).

Proponents of the stimulus program focused attention on infrastructure projects during the fight to win approval for it last year.  But, the bulk of the money proposed for projects like new rail lines and water projects — about $180 billion in all — is likely to be spent this year at the earliest.

During year 1 of the stimulus, only about $20 billion was handed out for infrastructure projects.  Of the $179 billion in stimulus funds paid out last year, $112 billion has gone out in the form of large checks to state governments to plug holes in school, Medicaid and unemployment-benefits budgets, or to increase funding for established programs, such as food stamps, according to a Wall Street Journal analysis.

But surely we must be seeing some major economic improvement?  NOT!  Economic data released today continues to verify that things are growing worse.  The Producer Price Index (PPI) came in at a whopping 1.4%.  Thank God, the Fed isn't too concerned (sarcasm intentional).

Fed officials expect the widely watched consumer price inflation index to stay between 1.3% and 1.6% this year, minutes of their latest meeting at the end of January showed Wednesday.  Core inflation is seen at an even lower 1.0% to 1.5% range by the central bank.  And we know how good their track record is (sarcasm intentional)!

We also have more "good news" on the employment front.  Initial claims for jobless benefits rose by 31,000 to 473,000 in the week ended Feb. 13, according to the Labor Department's weekly report Thursday. The previous week's level was revised upward to 442,000 from 440,000.  Economists surveyed by Dow Jones Newswires expected initial claims to increase only by 5,000.

Still think the Stimulus Plan is working?   If so, by all means, TAKE ME ON!

Marko's Take

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Wednesday, February 17, 2010

Is The China Miracle In Trouble?

Conventional wisdom has it that China is the "upcoming" superpower that will challenge the U.S. and ultimately take a position of world supremacy.  Long time readers of Marko's Take know why this cannot possibly be true (

China's demographic structure is not conducive to longer-term growth, as the result of their population control measures.  In general, demographic structures need to be pyramidally shaped.  If the lower end of the structure is curtailed through drastic measures, such as infanticide and limiting children, the pyramid shape gets warped and growth will ultimately cease.

In addition to the inevitable longer-term problems, a spate of shorter-term stresses are becoming known. Most private analysts who study China think its economic recovery lost some momentum in the fourth quarter of 2009, a new poll by The Wall Street Journal shows. The finding runs counter to official statistics that indicate a recent acceleration in growth and highlights the conflicting signals China’s economy is sending at a time when the leadership is trying to contain potential bubbles without derailing the expansion (

The median estimate in the Journal’s poll put growth in China’s Gross Domestic Product (GDP) in the fourth quarter at 10.1% over the previous quarter on an annualized, seasonally-adjusted basis — the way that most major economies measure growth. That’s down from the median estimate of 10.7% growth for the third-quarter.

China’s statistics bureau reports GDP growth in year-over-year terms and the difference can be significant. It said last month that the nation’s GDP grew 10.7% in the fourth quarter from a year earlier, a growth rate that accelerated from the third quarter’s 9.1%.  Even before those strong numbers were released, China’s central bank had already signaled a new and tougher stage in policy by starting a series of increases in banks’ reserve requirements, measures that reduce funds available for lending.

Complicating the picture further are newly-revised quarter-over-quarter growth estimates from the People’s Bank of China. These show a remarkably smooth trajectory.  After bottoming at 4.3% in the fourth quarter of 2008, annualized growth had recovered to 11.4% by the second quarter of 2009, eased to 11.0% and then picked up again to 11.3% in the fourth quarter.

That’s quite different from what most economists in the WSJ poll think happened:  a growth surge in the second quarter last year as the stimulus hit, and then a gradual slowdown as its impact waned.  While the central bank’s previous estimates had been within the range of figures that other economists had come up with, several private economists told us they did not understand how the central bank had arrived at its revised figures.

The problems don't stop there.  As the result of tremendous stimilus programs, China faces massive inflation pressure, which is affecting its currency, the Yuan.  With China’s economy surging and flirting with a property bubble, most analysts are prescribing the same remedy: a stronger Chinese currency that would help contain inflation (

A few economists are now turning that argument on its head and proposing that China allow inflation to do the work of currency appreciation.  Rather than adjusting the currency upward to make Chinese goods more expensive abroad, authorities should just allow rising wages and other costs to make Chinese goods more expensive, they say.  To put it in the language of economists, they think China can get the needed adjustment in the real exchange rate without actually moving the nominal exchange rate.
China is under tremendous pressure from the U.S., Europe and other nations to shrink its huge trade surplus, which some blame for contributing to the financial crisis.  A stronger currency could do that by making Chinese goods less competitive.  But, Premier Wen Jiabao and other government officials have pushed back against outside pressure on the currency.  They have kept the Yuan, or Renminbi, fixed against the dollar since mid-2008, and a big, rapid move is widely seen as unlikely.
Higher inflation could have the same effect — albeit indirectly — and be less contentious politically within China.  If average prices in China rise 5% more than in the U.S. and the currency doesn’t move against the U.S. dollar at all, the result is effectively the same as if China revalued the Yuan by 5% and the two countries had the same inflation rate.  In both cases, Chinese goods have gotten 5% more expensive in U.S. dollar terms, or to put it another way, the real exchange rate has increased 5%.
All of this suggests that China will need to undergo, at the minimum, a very painful transition process.  It also underscores the truly GLOBAL nature of the "Double Dip Hyperinflationary Depression".
Comments?  Disagree?  TAKE ME ON!
Marko's Take
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Tuesday, February 16, 2010

ECU Silver Mining: As Good As It Gets!

I haven't tended to recommend individual stocks on Marko's Take since we usually focus more on "big picture" issues.  In addition, this is a free site, not a "for pay" newsletter and there are many excellent newsletters out there that provide specific recommendations (

Today, I'm going to depart from my tradition in honor of today's 99th Marko's Take and discuss an individual company that I think is so juicy that I hope you're in a position to take advantage of it.

First off, the requisite disclosures:  I own many shares of this stock and I have recommended it privately to friends, who are mature enough to know that it, like other stocks, carries risk.  Second, I AM NOT currently being paid to recommend this stock by anyone, including the company.  Third, I am NO LONGER a Registered Investment Advisor and therefore, not licensed to be making official recommendations such as your personal financial advisor or financial planner.

That said, let's talk ECU!

First off, you might want to start by visiting the company's website ( which is loaded with information.  I've spoken to company management and found them very approachable.  No harm in trying that if you have questions.

But before you go into that level of detail, which I recommend you do, I'll give you an overview as to why this company is so worthwhile.

ECU Silver Mining, as the name suggests, is primarily engaged in exploring for and producing silver.  However, the company also produces Gold, Lead and Zinc.  The company's production of Gold and Silver are in the midst of a significant ramp up and ECU appears to be "cash flow positive", which is amazing given its low valuation.  Now, it's important that I remind you that I said "appears" because the accounting conventions employed by miners is very complicated and one has to have a certain level of experience to understand the rules they're bound by.

On the Company's website, an excellent overview can be found here
This is where things get really exciting:  The stock closed Friday at 60 cents per share and has a market capitalization of about $200 million.   Compare that to any other company with similar merits and you'll witness market caps well in excess of $1 billion!!!

I am unaware of ANY miner, that is generating cash, having massive reserves and selling for anything near $200 million.  ECU could easily justify a valuation, even at current Gold and Silver prices of TEN TIMES that amount!

So, why is the company so cheap?  Well, it has gone through some hiccups in its history and did sell for a much higher amount in recent years.  In early 2007, ECU sold for nearly $3 per share, well before a spate of new discoveries were made and the company was producing!  Since then, the news has been excellent and ECU has suffered both from some difficult market conditions and being unknown.

Undoubtedly, investors have gotten tired of holding this company and have moved on. I owned it back in 2007, and rode it down substantially. I can completely relate to the frustration.

I hope, upon reviewing the information provided coupled with your own research, you find this company the undervalued gem that I do and are able to hop aboard the train.

Comments?  Other gems you like or would like me to cover in the future?  TAKE ME ON!

Marko's Take

Monday, February 15, 2010

What Exactly Is A Junk Bond?

"Junk" bonds are defined as those which carry a credit rating of BA+ and below by Moody's, or BB+ and below by Standard & Poors.   This definition is somewhat arbitrary and both of these rating agencies have been tarnished in the last couple of years.  Both gave out AAA ratings, the highest possible, to a number of issuers only to have them default.

The list of idiotic ratings includes many Collateralized Bond Obligations (CBOs), which were insured by "mono-line" insurers AMBAC and MBIA - all of which either defaulted or underwent significant restructurings.

Having traded junk bonds in a former lifetime, I used to bristle at the term junk for several reasons.  One, the term is quite perjorative and tars the entire group with the same brush.  Second, junk status does NOT speak to VALUE.  A very low rated company could be a steal, while a high rated company could be tremendously overvalued, as holders of AMBAC and MBIA debt found out in 2008.

Junk bonds are merely part of a continuum of risk in the entire arena of corporate bonds, all of which should be viewed on the basis of risk and return.  At the "high quality" end of the risk spectrum are "investment grade" bonds - those which carry a credit rating of BBB- and above by Standard & Poor's, or BAA- and above by Moody's.  An investment grade rating is incredibly difficult to get - less than HALF of the Fortune 1000 would qualify!

Valuation of any corporate bond is viewed by comparing its "spread over treasuries" to its risk.  The spread is measured as the difference between the yield on the corporate bond and the yield on treasuries corresponding to the same maturity.  A high spread is indicative of attractive potential returns, while a low spread indicates the opposite.

For most investors, buying individual junk bonds, or any corporate bonds for that matter, is very difficult.  Corporate bonds are typically sold in lots of $1 million face value, therefore, one needs at least $20 million to properly diversify that asset class alone!

An interesting Exchange Traded Fund (ETF) exists to allow smaller investors to take a postion in junk bonds.  The ticker is JNK and it's comprised of approximately 100 issuers carrying a combined yield of just over 11%.  It's impossible to assess it's value based on this information alone, since we'd have to analyze the entire basket as to risk and return. 

Concerns about the credit worthiness of the "PIGS" countries ( has weighed heavily on all segments of the corporate bond market, especially junk.  Year-to-date, junk bonds have returned MINUS 1.58%.

Prospectively, given the massive economic problems that lie directly ahead, I would, for the time being AVOID this sector.  Once the economic damage has been done and yields shoot higher, this sector might be worth a look. 

Junk bonds are a very poorly understood asset class, so it made sense to do a little primer of just what makes them tick. 

If you have any questions or comments feel free to TAKE ME ON!

Marko's Take

Sunday, February 14, 2010

Middle East Reaching A Fever Point!

But then, when ISN'T it?

Recent developments suggest that a major conflict is imminent.  I first wrote about an impending war with Iran several weeks ago (

Of course, that hasn't come to fruition... yet!  But recent developments suggest that the liklihood of a major military episode has gotten much higher.  Russia had formerly been a staunch supporter of Iran and had gone so far as to threaten to intervene if the U.S. got involved.  Recently, Russia has suggested that its view of Iran's nuclear program has changed.  It now views the emergence of a nuclear Iran as a threat.

According to an article in Times Online, Israel is waging a covert assassination campaign across the Middle East in an effort to stop its key enemies from co-ordinating their activities.  Israeli agents have been targeting meetings between members of Hamas, the leadership of the militant Hezbollah group and the Iranian Revolutionary Guards.

They are also suspected of recent killings in Dubai, Damascus and Beirut.  While Israel’s Mossad spy agency has been suspected of staging assassinations across the world since the 1970s, it does not officially acknowledge or admit its activities.

The current spate of killings began in December when a “tourist bus” carrying Iranian officials and Hamas members exploded outside Damascus.  The official report by Syria claimed that a tire had exploded, but photographs surfaced showing the charred remains of the vehicle — prompting speculation that a much larger explosion had taken place.

Several weeks later a meeting between members of Hamas, which controls Gaza, and their counterparts from Hezbollah, in its southern Beirut stronghold in Lebanon, was attacked, resulting in several deaths.  Several international networks have said that Iran is disrupting their Farsi-language satellite transmissions, Israel Radio reported Friday.

According to the Jerusalem Post, Iran has been blocking GMail since last Thursday.  BBC Radio, The Voice of America and the German network Deutsche Welle defined the interference as electronic disturbances from Iran.

Any military strike against Iran would be very risky, even according to internal Isreali sources.  While endorsing international efforts to pressure Tehran into curbing sensitive nuclear technologies, Israel has hinted it could resort to force.  But some analysts say Israeli jets would be stymied by the distance to Iran and by its defences.

Asked in a television interview about Israeli leaders' vows to "take care" of the perceived threat, ex-general Dan Halutz, who stepped down as armed forces chief in 2007, said: "We are taking upon ourselves a task that is bigger than us" (

The United States and European nations are trying to enlist other world powers in stepping up sanctions against Iran for its uranium enrichment, a process with bomb-making potential.  Tehran denies having hostile designs, but its anti-Israel rhetoric has stirred war fears.  Some analysts believe Israel, which is assumed to have the Middle East's only atomic arsenal,  neither confirms nor denies this capability.

It may be that another military confrontation in the Middle East is inevitable.  We hope not.  However, if one should occur, the obvious implications are MUCH higher oil prices and MUCH higher Gold prices. 

Care to weigh in?  Care to disagree?  TAKE ME ON!

Marko's Take

Related articles: (

Saturday, February 13, 2010

Euro Now Leads Dollar In Race To Oblivion

On this side of the Atlantic, most thinking people understand that the Dollar is in "Deep Doo Doo", as George H. W. Bush might say.  Yet, the Euro is even worse!

Bringing the deep-rooted problems of the Euro to the surface have been the recent developments in the so-called "PIGS" countries and their imploding sovereign debt (

Germany has paid lip service to a potential bailout of Greece, but as of yet, no deal has been struck.  It appears that a wait-and-see policy has been adopted in the hopes that a combination of public assurances that Greece will NOT be allowed to default, combined with the Greek government's rigid adherence to its austerity program, will be enough to stabilize the markets.

The financial stresses becoming more evident in Europe are being felt by the common denominator of the European Union (EU), the shared currency known as the Euro.

The "Dollar Index", which is a basket of currencies that the greenback is compared to, is heavily weighted by the Euro - nearly 60%.  As a result, the Dollar and Euro tend to trade inversely.  Thus, the recent "strength" in the Dollar is nothing more than the mirror image of the severe weakness in the Euro.  The two currencies are BOTH in trouble, but the exchange rate is relative and at this time, the Euro is making a headlong sprint toward the "Finished" Line!

The Euro is currently worth $1.36 - down 10% since December 1, 2009.  During the same period, the Dollar Index has gained roughly 8%.  (In 2000, as the Euro was launched, it traded as low as about $.85 and then steadily climbed to its all-time high of $1.60 in July 2008).

Given the current trajectories of both the European and American economies, the final destruction of western currencies may be entering its terminal phase.  Only a return to an asset-backed status, preferably Gold, can stop what appears to be inevitable.  The only question is whether the Dollar or Euro reach "toilet paper" equivalency first!

History has shown just how dangerous even a single currency meltdown can become:  The Russian Ruble, not a major currency in the least, triggered the 1998 financial panic which brought down the large hedge fund known as "Long-Term Capital Management", putting world stock markets into free-fall and requiring emergency action by the Federal Reserve. 

Can you imagine what would happen if BOTH the Dollar AND Euro imploded?

If you either think I'm missing something or want to put your 2 cents in, while your 2 cents are still worth 2 cents, you know what to do.  TAKE ME ON!

Marko's Take

Friday, February 12, 2010

Rare Earth Metals Getting Rarer

While we frequently discuss Gold, Silver and other commodities, there are an entire class of metals that most folks have never heard of, which are referred to as "rare earth" metals.

According to various definitions, "rare earth" metals are broken up into two distinct groups of elements, known as the "lanthanide" and "actinide" series.  A full listing of rare earths can be found here (

Why do we care about rare earths?  Because, they're already rare and getting RARER still!

According to a recent article in the Financial Times, China’s leading producer of rare earth metals has been given government approval to build a strategic reserve, exacerbating concerns that Beijing is tightening its grip on the valuable minerals needed to produce green and high-technology products.

China supplies about 95% of the global market for rare earths, used to produce everything from hybrid cars to iPod music players.  Over the past three years, China has steadily cut export quotas for rare earth elements, saying it needs additional supplies in order to develop the domestic clean energy and high-tech sectors.

This has fed foreign suspicions that Beijing plans global domination of rare earths.  Deng Xiaoping, the former Chinese leader, said in 1992 that, while the Middle East had oil, China had rare earths.  However, foreign and Chinese industry executives doubt Beijing’s goal is to create an Opec-like price cartel.

Fortunately, a variety of rare earth metals are either under development, or currently being produced by two North American companies:  Avalon Rare Earth and Ivanhoe.  Avalon was recommended by James Dines, who writes a very well known newsletter.  Both of these companies are publicly traded if one should want to investigate possible ways to benefit from a potential future extreme world shortage.

I want to re-emphasize that I'm not recommending either of these companies, but want to inform readers of "Marko's Take" that they exist, should your investment dollars need a very high risk, but potentially high returning alternative to the Precious Metals arena.

Comments?  Questions?   TAKE ME ON!

Marko's Take

Thursday, February 11, 2010

Crude Awakening

After a very wild couple of years, crude oil and gasoline prices appear to have stabilized somewhat.  But, will it continue? 

Crude oil has seen some fairly wide swings since 2008.  In July, the benchmark crude, West Texas Intermediate (WTIC), rose to nearly $150 per barrel and then crashed to just above $30 per barrel in December!  Since June, 2009, WTIC has mostly hovered between $60 and $80 per barrel.

I believe that the lull in crude oil is over and that we are in for a "Crude Awakening" as oil prices resume their upward march, despite the poor economy.

The International Energy Agency (IEA) raised its forecast for global oil demand this year as developing countries need more crude to fuel their economies. The IEA increased its estimate for world demand in 2010 by 170,000 barrels a day to 86.5 million barrels. That would mean a gain of 1.6 million barrels a day, or 1.8 % from 2009 levels.

Consumption growth is driven entirely by economies outside the Organization for Economic Cooperation and Development (OECD), the IEA said.  Asian economies, particularly China, will lead the increase.  Chinese oil demand is forecast to surge 4.7% this year to 8.9 million barrels a day. The outlook assumes that steps by the Chinese government to curb inflationary pressures won’t curb economic growth forecast by the IMF at 10% this year.

The recently stable price of crude is misleading.  Since December, the U.S. Dollar has appreciated 10%, thus artificially dampening any surge in the price of crude.  However, as all readers of "Marko's Take", and anyone with a brain for that matter, all know that the dollar is gonzo!  As the long-term downtrend in the dollar re-asserts itself, upward pressure on oil prices will result.

Unfortunately, it's very difficult to benefit financially on a rise in oil prices.  Normally, one might want to buy oil stocks, but that strategy is not likely to work.  The main reason is that higher oil prices and higher oil company profits will prove to be a very tempting source of revenue for our friends in Washington, D.C.

Even self-proclaimed tax-cutter Sarah Palin has passed a "Windfall Profits" tax in Alaska. 

The best way to profit from higher crude prices, in my opinion, is through the purchase of alternatives - such as uranium miners, solar companies or other energy sources whose viability will be enhanced indirectly. I would AVOID the Exxon's and Chevron's, who are companies that everyone "loves to hate".

I realize that most people aren't liquid or wealthy enough, but if you ARE able, solar panels are a great way to go, as is good old conservation.  If you've looked into solar in the past, try again.  The price of panels has dropped by nearly 40% in the last year.

Do I have to say it?  TAKE ME ON!

Marko's Take

Related articles: (,(,

Wednesday, February 10, 2010

World War III Has Begun!

I believe, that sometime way in the future, historians will have concluded that World War III had already begun BEFORE this blog was written.  You may be wondering what on Earth Marko is smoking, so let me 'splain.

At one time, the concept of war was throwing rocks.  It then advanced, in a series of stages to guns, bombs and then nukes.  A World War meant that a bunch of countries with aligned interests banded together to fight a different group of countries.  Not that the "allies" were in any way friends -  they shared a common enemy or enemies and a consortium of sorts got created.  In World Wars I and II, the "teams" were obvious.  You didn't need a scorecard.  Today, that's all changed.

War now consists of AT LEAST 5 components:  military, terrorism, financial, trade and economic. (One also need take into account civil war).  Each subcomponent has it's own set of allies.  Take any country and it will be at some stage of war with any other country, or just about.  Here are a few examples of how confusing this new definition of war can be.

China is at war with the United States financially and economically, but not militarily ( yet.  The article sited in the previous sentence discusses the Chinese military's desire to punish the U.S. economically!

 Russia was opposed to the possibility of U.S. involvement in Iran, but now is not (  However, Russia is at odds with the U.S. over the addition of the Ukraine to NATO and military war has recently broken out between Russia and Ukraine over delivery of natural gas.

Confused?  Let's keep going.

The U.S. is at war militarily against Afghanistan, which is surreptitiously being supported by Pakistan - supposedly a U.S. military ally.  Israel is in a virtual state of war with the entire Middle East militarily and from terrorism, but seems fine on the economic, financial and trade front in large part because of its protected status as a U.S. proxy.

Large holders of U.S. Dollars are engaged in a form of financial war with America.  They feel cheated by the continual degradation of the greenback and the debasement of their dollar-based wealth.  Yesterday, I wrote about the problems with Sovereign debt, especially in the "PIGS" countries of Portugal, Italy, Greece and Spain (  If these countries should default, they risk military war with holders of their debt. 

There is a precedent.  After World War I, the reparations imposed on Germany proved a hurdle that the country could not overcome.  The country began debasing its currency, hyper-inflation ensued and then came the rise of Adolf Hitler, which led to World War II.

As you can gather, the matrix of the various elements of "War", as defined by "Marko's Take", is exponential and encompasses virtually the entire planet!  Unfortunately, it WILL get worse!  Economic, financial and trade war will, with virtual certainty, lead to military war.  The question is how every country will align and on which dimensions. 

Thus, I argue that we are already well into World War III and that, while it does not appear so yet, it soon will become OBVIOUS.  All we can do is hope that sanity somehow prevails and the "Ball of Confusion", known as Earth, does not blow itself to smithereens.

 Further compounding things in the U.S. is the fact that we are in the early stages of a CIVIL WAR.  The young are pitted against the old via Social Security, the races are boiling over and the "boys club" in Washington, D.C., is at war with ALL OF US!

So, what do YOU think?  I think you should TAKE ME ON!

Marko's Take

Tuesday, February 9, 2010

Sovereign Debt Crisis Threatens To Take Down World Economy

First we had countries which fell under the acronym "BRIC" - Brazil, Russia, India and China.  These countries were believed to be the emerging world powerhouses.  Now, we have a new one:  "PIGS", or Portugal, Italy, Greece and Spain.  In the case of PIGS, the acronym is not in the least flattering.  Rather, it refers to a group of countries in such financial trouble that their sovereign debt is threatening to pull down the European Union (EU) and possibly the global economy altogether!

The sign that major stresses can be felt is being witnessed in both the bond markets and the countries'
"Credit Default Swaps" (CDS), which price the "insurance" against default.  Recently, Spain's and Italy's bonds have carried a CDS of 1.65%, Italy's have risen above 1.5%, while Greece's have expanded to a frightening 4%.  To put things in perspective, the United States, no longer considered a great credit, has an active CDS market priced at less than 0.5%!  Ireland, not officially a PIGS country, but guilty by association, has its CDS in the 1.5% range.

About six weeks ago, I wrote a piece on Soverien Debt (  Reading this might provide some excellent background for anyone unfamiliar with the issues.

According to a recent article in the Wall St. Journal, the global economic downturn and extensive government spending to fight it, have led to major fiscal problems in Europe, especially for less-dynamic economies like Greece, Portugal, Ireland and Spain.  Such countries took advantage of their membership in the 16-nation euro-bloc during the boom by borrowing at unusually low interest rates.  But now, investors are worried about how they will reduce yawning budget deficits that exceed 12% of their economic output in the case of Greece and Ireland.

European policy makers are trying to pressure countries like Greece into taking stronger action to fix their finances. 

The potential damage from any sovereign default in the EU will affect the entire region which shares a currency but NOT fiscal policies.  Now there is talk that Greece is looking to be "bailed out".  Wonder where I've heard the words "bailed" and  "out" before?

The sovereign debt isssue is another reason that 2010 is shaping up to be one nasty year!

Questions?  Disagree?  Agree?  TAKE ME ON!

Marko's Take

Monday, February 8, 2010

Great Employment News... Or Was It?

At first blush, the employmet report released on Friday stated that unemployment FELL from 10% to 9.7%.  Our President, who LOVES to take credit when NONE is due, was first to proclaim that HIS policies were working!  Readers of "Marko's Take" know that all such proclamations from the current administration should be treated as highly suspect and the hour long "back patting" session did not disappoint.

The jobless rate fell to 9.7% from 10% in December, the Labor Department said Friday, because its survey of households found more people landed jobs than entered or returned to the labor market.  However,  a separate survey of employers, which counts how many workers are added or cut from payrolls, found that 20,000 jobs were eliminated last month. And revisions to last year's data found far more jobs were lost over the 12 months than previously predicted.

Annual revisions to the payrolls data showed job losses since the recession began were much deeper than originally thought. The economy has lost 8.4 million jobs since December 2007, compared with 7.2 million before the revisions.  In January, the number of "discouraged job seekers" stood at 1.1 million, up from 734,000 a year ago.  Last month, 6.3 million people had been out of work for more than 27 weeks.

Analysts expect U.S. payrolls to start growing in February as the government steps up temporary hiring for the 2010 census. Thankfully, we have BIG BROTHER as the employer of last resort!

The myriad of "seasonal adjustments" make it extremely difficult to look further below the surface until more data begins to be revealed - but suffice it to say that the "good news", as reported on Friday, was tepid at best.  We expect the increase in unemployment to resume its downward trajectory as the economy begins its trip towards its inevitable second dip.

Marko's Take

Sunday, February 7, 2010

Market Waterfall Fast Approaching: How To Benefit!

All signs point to an imminent, violent and downward move in the stock market.  Fortunately, as a reader of "Marko's Take", not only can you AVOID it, but you can BENEFIT from it!

First, let's go through the reasoning.  The Dow Jones Industrial Average (Dow), recently broke a very reliable chart pattern known as a "rising wedge" or "bearish wedge".  This pattern is characterized by a series of higher highs and higher lows, but the pattern of highs and lows eventually cross, forming an upward sloping triangular shape, or "wedge".

As the market moves to the apex, or point of crossing, it can only do one of two things - break up or break down.  Normally, these patterns break down and when they do, it is highly likely that a key reversal has taken hold.

Second is the sudden increase in "volatility".  Normally, a healthy and rising market, NOT in a mania, will be characterized by low volatility or a small amount of either day-to-day fluctuation or intra-day fluctuation.  A falling market will typically experience rising volatility as investor panic sets in.  In the last two weeks the market has broken a year long trend of falling volatility.  It has suddenly spiked higher. 

Low volatility is the result of good liquidity.  In other words, as there is a better balance between buyers and sellers, market movements are dampened.  When liquidity is low, volatility rises as sellers swamp buyers and larger movements are required to entice buyers to step in.

Finally, this breakdown in stocks would be consistent with the oncoming double dip of this DEPRESSION.

So, how can you benefit?

There are many interesting alternatives - especially "inverse" Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs).

So, it depends on how aggressive you want to be.  Inverse ETFs and ETNs come in a variety of flavors.  ETFs often act as inverses by a factor of 1 - meaning that if an index drops by 1% in a day the ETF will rise by 1%.  ETFs or ETNs, on the other hand, can also use leverage and MAGNIFY the effect.  For example, ETFs and ETNs exist with both double and triple leverage.  A triple inverse ETF or ETN will rise 3% for every 1% drop in the market on a daily basis.

Some ETFs that can be employed to create a short position can be found here (, as can an excellent selection of double inverse vehicles.

For some of the more aggressive ones they can be found here (

Naturally, I cannot recommend anything but merely provide you with the information.  I am no longer a Registered Investment Adviser (RIA) and need to make this disclosure.  Each of these vehicles carry tax consequences and you should consult with a real RIA, as opposed to taking my word for it.

It's a crying shame that the country is on the cusp of entering perhaps its darkest period.  But that doesn't mean that you need to go down the tubes with it.

On Monday, we'll cover the new employment data released last Friday and its implications for the economy.

Marko's Take

Saturday, February 6, 2010

Gold Reaction Or Gold Over-Reaction?

There is no more certain way to be right than to make two opposite predictions.  Therefore, ONE must come true.  And so it was last week with this now humble publication.

At first, as we gave an overview of the Gold market's technical picture, we formed a near-term bearish conclusion (  Then, two days later, we crowed that the Gold picture had brightened considerably (

In each case, the pronouncement turned out to have correct and incorrect elements. After the first piece, the Gold market rallied smartly.  After the second piece, the Gold market plunged!  Now that we've taken a big bite out of our hats, let's revisit the entire Gold situation for use from here.

The first piece was basically correct.  There WERE danger signs that the correction in Gold, Silver and affiliated miners had NOT completed their retracement phase.  But, the rush to follow with the second piece was pre-mature, although it, too, was somewhat correct in that the picture HAD brightened and, despite the tremendous volatility of last week, continues to strengthen. 


The danger period for Gold, Silver and mining stocks is either over or very close to over.  Friday's trading witnessed a large number of mining stocks completing "outside day reversals".  As an outside day refers to a bottom, it occurs when a stock or index trades LOWER than the prior day's low and then closes HIGHER than the prior day's high.  Some technical analysts refer to this as an "engulphing pattern". 

Going back to Friday, the outside day reversal is a VERY POWERFUL change of trend indicator!

This means that the odds of a low having been reached intra-day Friday are excellent!

The overall pattern forming is that of an A-B-C correction, where downward waves A and C are of roughly equal length and interrupted by a "counter trend" wave B.

It's time to buy.  For those that are new to the site, I would like to re-iterate the better vehicles.  First, I would AVOID either GLD or SLV, which claim to be backed by physical Gold and Silver, but may not be.
If you wish to invest in a bona-fide metals backed fund, try CEF which is backed by both Gold and Silver.
The only problem with CEF is that it often trades at a premium to its underlying "Net Asset Value" (NAV), so you have to be careful not to overpay.

I prefer GDXJ, an Exchange Traded Fund (ETF) basket of about 40 junior Gold and Silver mining stocks.  It has a very decent selection of miners within it and for most people it will prove to be an excellent way to play the next MAJOR move higher, which ought to start any day now, if it hasn't already started.

I don't think it impossible for the precious metals market to back and fill for the next few days, especially Monday.  However, I highly doubt that it will take more than 2 or 3 days to complete the entire corrective phase from $1,200.

Tomorrow, we'll revisit the stock market, which STILL looks like it is in the very early stages of waterfall decline or crash. 

If you think my logic is less than golden, you know what to do.  TAKE ME ON!

Marko's Take

Friday, February 5, 2010

Social In-Security: The Solution

Yesterday, we identified a very under-appreciated problem:  the oncoming freight train/ponzi scheme, which goes by the name of Social Security (SS).  Today, we'll offer Marko's Take on how to fix the problem.

The good news is that a very real solution can be cobbled together.  Unfortunately, we must all realize, as a nation, that we've been screwed and that virtually everyone will be subject to some form of sacrifice.  The bulk of money has been squandered and, rather than crying over spilled milk, let's suck it up, make the required adjustments and realize that the problem was decades in the making.  The solution can be implemented immediately!

Because SS is like a drug and the population is addicted, we will need to employ a gradual process to minimize the adjustment pain and withdrawal symptions.  Therefore, we must all become members of SS-Anonymous and declare "My name is Marko and I'm an SS-aholic"!  Fortunately, this process won't take 12 steps!  In fact, it ought to take 7.

Ready to solve this mess?  Here we go!

1.  For anyone receiving SS benefits, make only one change:  apply a "means" test.  In other words, let's admit that SS is nothing more than a disguised form of welfare.  So, if Warren Buffett or T. Boone Pickens or anyone else who is wealthy is receiving SS, they must be cut off immediately!

2.  For anyone older than 55, permit them to stay in the system and receive their promised benefits and pay into the system as it currently stands.  However, we should still offer incentives if they surrender their upcoming benefits.  (I'll get into the possible incentives in a minute).

3.  For anyone younger than 30, immediately stop taking payroll deductions for SS and take them out of the system altogether.  The payroll deduction should also apply to the "employer" portion.  In so doing, the "cost" to an employer of adding a body will DECREASE by more than 15%!  Guess what that means?  MORE EMPLOYMENT for the young!!!

4.  We should require that everyone entering the labor force "set aside" 5% of their income, on a pre-tax basis, into some form of deferred income vehicle like a 401-K or IRA, however without a maximum.  If they choose to save 20%, great!  The deployment of the funds should be mostly left up to them.  However, I would urge that at least 2 1/2% be mandated to go into U.S. Treasuries.  Someone has to buy our bonds! 

5. Offer incentives for anyone wishing to "opt out" of the system.  Obviously, the incentive structure will have to be sweeter the older someone is.  It would not be fair to offer a 54 year old the same incentives as a 31 year old.

6.  The incentives could include future income tax credits for a portion of lifetime "contributions".  Therefore, an older person will be given more value than someone younger.  Another incentive could be a tax credit applicable to "estate taxes" once someone passes away to benefit the payee's heirs.  In fact, some fraction of the "asset value" could be passed on directly to heirs.  The list of possible incentives is endless, so I won't go into an exhaustive list but as you can see, we can creatively "offset" the amount that Uncle Sam has STOLEN and find ways to partially restore the "value" of our collective thievery.

7.  Make sure that Congress is immediately put into the system.  Since they will have to pass the laws necessary to make the fixes, force THEM to realize what a wonderful system we have!  That way, perhaps, they can become a bit more creative in ponying up legislation.  Not that they need to be so creative. They simply need to read "Marko's Take" and see that a blueprint for fixing the mess has already been laid out for them!

If you have any other ideas on how to fix the mess or think I'm out of my mind, you know what to do... TAKE ME ON! 

Marko's Take

P.S. Because of the recent market volatility, we will update prospects for the stock market and Gold over the weekend.

Thursday, February 4, 2010

Social In-Security: The Problem

While developed by a man named Charles Ponzi, the idea of a pyramid scheme has never been employed on such a large scale as that used by our very own government.  That system is known as Social Security (SS)!

A Ponzi scheme is a fraudulent investment operation that pays returns to different investors from their own money or money paid by SUBSEQUENT investors, rather than from any actual profit earned. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from NEW investors to keep the scheme going.

The system is destined to collapse because the earnings, if any, are less than the payments to investors. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases. While the system eventually will collapse under its own weight, the example of Bernard Madoff illustrates the ability of a Ponzi scheme to delude both individual and institutional investors, as well as securities authorities for long periods. Madoff's variant of the Ponzi Scheme stands as the largest financial investor fraud in history committed by a single person. Prosecutors estimate losses at Madoff's hand totalling $64.8 billion.

Social Security is nothing more than a Ponzi scheme on a massive scale.  In its case, it only functions as long as young payees exceed older retirees by a large fraction. When it was created, there were 16 contributors to every taker.  Now, that ratio is closer to 2 to 1.

The system is also known as an "inter-generational transfer" - a fancy way of legalizing the theft from young people by old people.  Not that old people are thieves, most don't understand the system because the government has repeatedly lied about SS's mechanics.  We have been told that a "trust fund" exists.  This fund is supposedly related to the amount that all of us contributors put into the system during our working lifetime.  That's NOT true.

In reality, SS is no different than that practiced by Bernie Madoff.  New "contributors" are needed to fund older beneficiaries.  When the system was initiated, the beneficiaries hadn't paid a dime.  Over time, as benefits were raised to curry favor among older voters, who represent a powerful voting block, younger people have been saddled with greater taxes. 

But the greater taxes that show up on a "contributor's" W-2 is only HALF of what that person is responsible for.  In order to disguise the sheer onerousness of the tax, the government has split the "take" between the employee and the employer.  An employer must look at the TOTAL costs of adding a body.  If an employer figures that adding a new body will cost the company $100,000, the amount of "contribution" mandated for the hiring company to make must be factored into the decision.  So, the employer contribution is, in reality, borne by the employee his or her self!

The fraud further continues as it applies to the "budget deficit".  SS is only considered in the budget deficit calculation on a "cash" basis, meaning that if more is paid in than is taken out, the cash "surplus" is used to offset the rest of the deficit.  For ANY other corporation, the accounting rules would be different.  The company would be required to report as a liability the ENTIRE amount of pension it is likely to incur over the employees' lifetime.  If that same requirement were applied to Uncle Sam, the National Debt would explode by DOUBLE or TRIPLE its current amount!

Until recently, the SS System was "cash flow positive".  However, as pointed out in an article by Allan Sloan of Fortune, that may no longer be true (

The SS time bomb has been ignored by lawmakers for years.  Now, among all the other problems plaguing our financial system, SS has crept up without much scrutiny and notice. 

Tomorrow,  in "Social In-Security:  The Solution", I'll give it a real Marko's Take-type swipe at steps we need to execute immediately to fix the problem.

If you LOVE SS and want to get your two cents in, you know what to do... TAKE ME ON!

Marko's Take

Wednesday, February 3, 2010

The Gold Picture Brightens Considerably

OK, so two days ago I went through a "technical analysis" review and concluded we were NOT out of the woods... yet.  As to that statement, let me ammend it.  While we are not out of the woods, I see a clearing and it's time to begin to add to positions or take new positions in the Gold, Silver and the mining stocks market.

As Archie Bunker would say, even the fine staff at Marko's Take is not "inflammable"!

The call we made a few weeks ago to lighten should turn out to be valuable.  So should the call that a waterfall decline in stocks is squarely ahead.   But for now, let's focus on the barbaric relic.

Why the change?  Gold has recently bottomed twice at the $1,075 level and held.  In the last two days, it has rallied sharply.  An interesting pattern, known as a "pennant", is forming on the chart.  So, unless Gold violates the $1,075 level, we are forming a VERY constructive launching point for the yellow metal to vault significantly higher.

What should we look for from here?  Based on the chart pattern, Gold will do one of two things:  either retest the $1,075 level or thereabouts again, or it will pause and shoot straight higher.  While it would be normal for the re-test, it is by NO MEANS guaranteed.  Therefore, waiting for a re-test may turn out to be a major mistake and prevent one from re-boarding the train at what is, in the great scheme of things, a fantastic entry point!

As of a few days ago, it was impossible to tell where this "correction" would take Gold.  What makes the pennant formation so useful, is that we have an excellent "stop loss" point of $1,075, and the opportunity to hop back aboard the train at values NOT LIKELY TO BE SEEN AGAIN WITH VERY LIMITED AND SHORT TERM DOWNSIDE!!!

Marko's Take?  Green Light!  Strap on your seat belts and get ready for the ride of your life!

You know what to do if you think I'm full of it!   TAKE ME ON!

Marko's Take