Wednesday, August 1, 2012

"Debt bomb"with lyrics - must watch video

(Lyrics by Dominic Frisby)

Aw, aw baby, yeah, ooh yeah, huh, listen to this

Mortgages, cars, consumer shite
Government spending all through the night
Pensions and healthcare and welfare rights
Education , wars to fight

Run up a deficit, ignore the facts
Blame someone else, put up tax
I can’t deny we had a crack
But now we gotta pay it back

Debt bomb, debt bomb, you’re a debt bomb uh hu
The addiction to credit just goes on and on and on – give it to me
Debt bomb, debt bomb, you’re a debt bomb
A bail-out ooh you turn me on

You know what you’re doing to me don’t you. ha ha,
I know you do

If you can’t afford it don’t be ill at ease – no
Spend it anyway, you’ve got voters to appease
Take the prudent savers and just give them a squeeze
That’s the economics of Keynes

Quantitative easing, zero interest rates
Steal from the future, hide the bad mistakes
We gotta keep those asset prices high
Don’t matter if the credit’s dry

Debt bomb, debt bomb, you’re a debt bomb uh hu
Try to pay the debt off with inflation
Debt bomb, debt bomb, you’re a debt bomb
Malinvestment ooh you turn me on

A boom brought about by credit will always bust
You’ve then got two choices, decide you must
Abandon the addiction, the credit lust
Or the currency collapses , it just turns to worthless dust

Debt bomb, debt bomb, you’re a debt bomb uh hu
Destroy the country’s money, anything to carry on
Debt bomb, debt bomb, you’re a debt bomb
Bubbles ooh you turn me on

More on the author can be found here:

Thursday, April 5, 2012

JP Morgan`s Blythe Masters enters defense mode

Blythe Masters, the famous and infamous, depending on who you`re talking to, head of commodity trading desk at J.P. Morgan, made a rare appearance on CNBC today.

She denied blogosphere rumors about J.P. Morgan being involved in silver manipulation, saying "it would be wrong and we don`t do it". She made the case that it might appear so from the outside due to hedging of client positions by having short positions to offset price volatility.

However, it would be most interesting to know who exactly are all those clients she`s talking about. One of the accusations brought about against J.P. Morgan is that the FED is using JP as a proxy to manipulate the silver price. If this is true, J.P. Morgan doesn`t do anything by itself but rather representing a client(the FED), acting as a tool. It`s a well known fact that J.P. Morgan is part of all those closed door FED meetings as you can see in this article written by Lynn Forester de Rothschild and in the picture below. Take note that not only that J.P Morgan shows up among the banks that held closed door FED meetings but it outmatches the other banks by far when it comes to the sheer number of held meetings. 

Blythe concludes the interview on an interesting note, dismissing the need for certain transparency after pandering to the politically correct crowd:

"..the key is to ensure that that regulation is good regulation and with this type of topic the devil is almost always in the details. So in the interest of greater transparency, less systemic risk in the system, less connectivity between major players...on all of those things we feel great strides have been made in advancing regulation to promote those objectives. Having said that, we have to aware of unintended consequences and there`s a real risk of those unintended consequences. For example: if you make it difficult for institution to transact in commodity markets by excessively exposing their actions to the public domain too quickly, it would actually drain liquidity and make it harder for those institutions to hedge."

Of course, if the rumor claiming J.P. Morgan is acting as FED`s proxy in manipulating silver and gold prices is true, "exposing their actions" would severely hamper their ability to play the market.

Monday, March 19, 2012

Steve Jobs rolling in his grave on dividend increase announcement

Stephanie Link(few minutes ago on CNBC): "Steve Jobs would be proud". This is what mainstream "analysts" think or are meant to think about Apple`s dividend increase.

As you may have heard already, Apple announced a dividend of 2.65$ and a share buy back program. This is something Steve Jobs fearlessly fought against since he took over the company. Unfortunately his famous motto "Stay hungry, stay foolish" died along with him at Apple.

Yes, some Apple shareholders must be popping the champagne bottles right now, but this actually spells trouble for Apple in the long run. This is yet another confirmation that Job`s creative genius died along with him.

The mainstream bank "analysts" should ask themselves how come Warren Buffett is also totally against the idea of dividends and yet has managed to outperform the market by far.

A dividend comes along with lots of strings attached. It comes bundled together with higher expectations built into it. There`s no hunger, just complacency. Tim Cook is taking company in the wrong direction and this will only become obvious in time. Company is still running on Job`s inertia and his plans, but as soon as those are out...expect Apple to be just another tech company. By raising dividend, Apple pretty much proved it`s not going anywhere in the long run.

What both Jobs and Buffett knew was that nothing beats potential growth. Paying a dollar in dividend today is destroying 10 dollars of growth tomorrow. In our case, Apple has, apparently, enough spare cash, but it`s not as much as the cash dumping into dividends that presents an issue, but the totally different way of relating to business strategy that should concern everyone.

When rival industry will be fully capable of emulating Apple`s current position in mobile computing, trend which is already happening, Apple won`t have much to hang on to. In the absence a creative genius like Jobs, Apple will end up stuck with no growth prospects coming out of novelty products that should force industry to emulate and follow. In the end, Apple will have nothing else to show for except a fat big drag of a dividend on a stagnating company.

Sunday, February 26, 2012

Total colapse or United States of Europe

The pulse

In the recent months, we`ve witnessed some tumultuous events going on in Europe. The old continent is confronting an economic and social crisis, the likes of which it hasn`t faced for the past 80 years, ever since the great depression of the 1930s. 
The money has run out, as debt of EU countries has reached unsustainable levels. Street protests and riots start to resemble more and more full blown revolutions, as we`ve recently seen in pictures of burning Athens.

The context (2008-2010)

To put things in context a bit: the 2008 crisis, which originated in the US, swept throughout Europe, bringing a credit crisis, lack of economic growth, higher levels of unemployment  and uncertainty. 

In the years that followed, 2009 and 2010, spirits became animated, throughout the world, by a so called “economic recovery”, which US Federal Reserve started by doing two big QE(quantitative easing) programs, injecting cash liquidity into the financial system to jump start the flow of credit to businesses, that in turn should have generated job growth and consumption.  The employed technique was similar to that of a paramedic doing electroshocks on a car crash victim. However, what it managed to achieve, was to just extend the patient`s agony, as year 2011 showed patient was still very much agonizing in a coma. 

The context (2010-2011)

Year 2011 culminated with the Occupy Wall Street movement, which started on Wall Street, in New York, US, but quickly spread to whole country and basically throughout the world soon after. Core of the movement was made up by young disenfranchised individuals with huge student loan debt. Unable to get jobs, in a sluggish growth environment where most companies laid people off, shipping jobs overseas, occupiers have taken their frustration on the Wall Street banking and financial sector who was recipient of several government bailouts since the 2008 crisis began. Movement spread to several US cities, sparking riots and clashes with riot police. However, winter of 2011 came and Occupy movement entered in hibernation mode, waiting to be resurrected in the spring of 2012.   


The Occupy movement spread as wide as South America, Europe, Australia and in Asia,  marking the sign of these distressed economic times on a global scale. 

In Europe, many companies followed the US pattern, closing factories and outsourcing jobs to stay competitive, laying off thousands of people on monthly basis.

 Under these circumstances, a great number of European countries have become unable to sustain themselves, as revenue generated from taxes became lower and lower. The IMF (International Monetary Fund) stepped in as a financier of last resort. However, the IMF is not in the business of giving something for nothing, and asked in return harsh austerity measures and cuts in government consumption, which basically means cutting wages, sacking people, cutting state departments and so on.

As IMF acted more on the EU periphery, throwing a bone to the none Euro-zone countries in Eastern Europe, the ECB (European Central Bank) took a direct role in helping out Euro-Zone countries, those currently using the Euro currency, such as Italy, Portugal, Greece, Ireland and Spain, also known as the infamous PIIGS (Portugal, Italy, Ireland, Greece, Spain). They`ve chosen to do so, to save the European monetary union, in an attempt to spread financial contagion. The help was given indirectly by having the ECB buying government bonds of those afflicted countries.

2011 was the year of several deep budget cuts throughout Europe, lots of political shakeups and street protest. Berlusconi, Italy`s prime minister, lost his decade long grip on Italy, Greece`s Papandreou government having suffered same fate, both being replaced with government of technocrats appointed by the EU Troika. As these governments were politically unwilling or unable to impose fiscal austerity measures, they were replaced by putting pressure on the political parties in those countries. The ECB wanted to make sure their money would not be wasted and real measures were going to be implemented.

The 2012 predicament – The two paths

Year 2012 found these newly elected governments, especially the one from Greece, led by Lucas Papademous, unable to implement the needed austerity measures and cuts. Recent riots in Greece have resulted in total chaos and the burning and looting of museums as well as major corporate stores and several buildings throughout Athens. Greece, unlike the other PIIGS countries can no longer be helped by buying their government bonds, as their yields(or interest Greece government has to pay) has skyrocketed to unsustainable levels. Greece currently receives aid packages conditioned upon implementing harsh austerity measures. However, given the looting and recent chaos in the country, it has become apparent, Greece may not tolerate this level of austerity. A deep division between Angela Merkel(the German leader) and the German financial minister(Wolfgang Schäuble), has basically created two paths going further as follows:

Path One – supported by Wolfgang Schäuble
Optimistic (Schäuble): Greece defaults and EU union is strong enough to take the hit

   Pessimistic (Merkel): Greece defaults and  risks  taking the  whole EU monetary union down with it


Path Two – supported by Angela Merkel

Optimistic (Merkel): Keep sending money to Greece, while pressing them to implement deep cuts and austerity, thus avoiding a Euro Zone meltdown and contagion.

Pessimistic (Schäuble): Keep sending money to Greece and sustain the necrosis, risking death of the Union, instead of cutting the leg and saving the body.

Total collapse or United States of Europe

However, both of the above scenarios might result in a total collapse of the European Union, as the money to keep buying PIIGS debt is just not there. 

In the optimistic scenario (if you can call it that), and if the above plans do work, Europe will be totally reshaped, sovereignty taken away from EU countries, with a tight centralized control imposed by Germany, the de factor leader of the European Union. Under this scenario, all the important economic decisions will be taken by a central European commission, while the European governments will have to act as servants, executing the orders. Europe will become a federal state, following the US model.
 Influential voices in Germany, such as the ex chancellor Gerhard Schroeder,  have already called for a United States of Europe.  

"The current crisis makes it relentlessly clear that we cannot have a common currency zone without a common fiscal, economic and social policy,"
 "We will have to give up national sovereignty."
"From the European Commission, we should make a government which would be supervised by the European Parliament. And that means the United States of Europe."

The pessimistic scenarios will bring about a total collapse of the Union, with grave economic repercussions, compared to which the 2008 crisis will look like a mere a prelude or anemic appetizer. 

"May you live in interesting times" is an old and curios Chinese curse which brings this whole political debacle to a new level of understanding.

Thursday, October 27, 2011

Signs of worldwide economic collapse and the rise of the US dollar

October has been a pretty spectacular month with regimes falling all over the Middle East, swept by the so called Arab Spring revolution.
In Europe, the France and Germany duo represented by Merkozy has grown apart in what seems to be a very poisoned and fragmented relationship. Illustrative of the tensions between them would be a weird occurrence when Sarkozy told an audience that Merkel helped herself with another serving of cheese while claiming she`s on diet. There is a very clear resentment and distrust between European leaders. Sarkozy also blasted David Cameron, the UK prime minister for interfering in Euro zone affairs while not being part of the Euro zone. The brits on the other hand are seriously considering exiting the EU. Berlusconi just presented yesterday a joke of a plan that infuriated Merkel, plan of increasing retirement age to 67 years by 2026(seriously?2026?). It`s no wonder Merkel took this proposal as a bad joke.

Europe has achieved so far, after long and hard fought battles, to have an EFSF fund worth around 400 billion euros. However, this sum is not nearly enough to prevent possible bank failures that may arise as result of 50% or higher "haircut"( aka forcing banks to take losses on Greek bonds) on Greek, Italian, Spanish or Portuguese debt. Most experts would conclude that the sum required would be close to 3 trillion euros, which is considerably higher. Only problem is that no one in Euro zone is willing to come up with the money, so what they`re trying to do now is borrow that money from outside sources and call that "leveraging the EFSF". Problem therefore amplifies as no one wants to lend them the money. So far US treasury secretary, Timothy Geithner refused to commit US money(as we all know US is in a deep hole herself), Brazil politely refused saying EU should be able to come up with ways of funding, China basically said no,no while criticizing reckless social entitlement programs, which they`ve called unsustainable. Few months earlier China contemplated helping EU in exchange for trade advantages that EU clearly dismissed as it would dig EU way deeper into a hole and trade deficit. However, situation now by the end of October is much more dire for China than two months ago when China supposedly offered help in exchange for trade benefits. China had to recently buyback shares on a number of Chinese banks to sure up investor confidence, plus there are ample reports of places in China where real estate market crashed 50% and would seem this is only the beginning of what should be a spectacular crash. There was also a reported case of 25% crash in real estate price happening overnight, due to some real estate developer slashing prices spectacularly on their offerings. As China is clearly in a hole at the moment, it`s very much unlikely they`ll give Europe more rope to hang themselves with. To add offense to injury, Sarkozy has just announced yesterday that he`ll try to negotiate with China some kind of lending deal for leveraging the EFSF. Good luck with that mission impossible! And this is where we are today.

All these developments, however, where extremely sugar coated by the media, giving false hope to investors while saying Europe is working on a plan to work out a plan to eventually think about working out a possible plan in drafting a plan. Market went up each time these non-event news popped out. Goes to show whole market is controlled by high frequency traders that have less common sense than a 10 year old that can only express himself through knee jerk reactions. Nothing new under the sun though.
While the non-event news were extremely sugar coated to be regarded as good developments, the bad ones were strategically given out at the end of market sessions(like the initial NO vote for EFSF in Slovakia).
As things stand at the moment, market has prized in a full recovery in EU and worldwide consequently. Nothing can be more false. There has never been such a perfect storm for a total market collapse, as US is in shambles with revolution brewing in the streets, revolutions sparkling out in Europe(Italy, Spain, Greece, UK), China poised for a violent hard landing.

While things are heading for collapse in Europe, in the US market has never been this bad, with consumer confidence dropping to 2008-2009 levels. This month`s earnings had pulled major negative surprises such as Apple missing its target for first time in many years. Banks reported dismal results, which they`ve tried to sugar coat and point to profits that only exist in some of their cooked books.
As even the darlings of US recovery, such as Ford and Apple are beginning to stumble, prospects in US look very dim. Presidential candidate Ron Paul made a statement recently saying real unemployment number is north of 20% and growing.
Companies are laying off people left and right. Banks are making huge cutbacks in personnel, Bank of America planning to lay off 30.000 employees with At&t, Bristol-Myers, Verizon and many others to follow suit. All these layoffs are perfectly mirroring situation in Europe, where Philips, Novartis and Nokia laid of dozens of thousand of people and planning more layoffs.
Yes, some would make the case market is growing in some areas, as some are doing good. However in most of these cases, companies are just stealing market share from other competitors(such as Google taking market share from Yahoo, Microsoft, Apple, RIM), market as a whole is seriously crashing. You can`t have overall market growth when 1 or 2 companies are growing 20% while 5 other similar companies are shrinking 30%. Talking heads on TV that want to make this case are just doing their usual sugar coating routine.

Now let`s take a stroll back down the memory lane of 1930 and the great depression. See how similar news headlines and sugar coating were to what we have today. For every warning piece of news there were few others to counter balance it for good measure and give confidence to investors:

In March of 1929 newspaper headlines began to hint that things were not quite as rosy as people had been led to believe. However, for every piece of bad news, there was an upbeat message to counter the bad news. Here’s a good example of a 1929 newspaper headline story, excerpted from the New York Herald Tribune, and which ran on March 28, 1929.
Headline: ‘Stocks Soar As Bank Aid Ends Fear of Money Panic’. The story read, in part, “The stock market strode out from under the shadow of a panic in call money … revived in all its old strength yesterday.
Assured that the New York banks were ready … to prevent a money crisis, the public and the professional trader set out to repair the damage done to prices on Monday and the major part of Tuesday.
Stocks in the aggregate, though bucking a 15 per cent rate for loans, enjoyed the greatest advance … in a single day in the last two years. Not even the surging bull markets of … 1928 saw such a day of heavy buying.”
This sort of reportage was typical of the 1929 newspaper headlines, right up to and following the market crash in October. Investors were told that this was just a ‘correction’ and the market would remain prosperous through at least 1930.
 How should investors position themselves given this dire context?

Some would argue governments will start to print more money in order to resume growth and therefore safe havens such as gold and silver are the place to be. In support of this view, we have seen recently some money printing coming out of Bank of England. However, it`s the same Bank of England who doesn`t think other central banks will follow suit (Fast forward to min 4:50 ).
In the US, there is big opposition from Republican presidential candidates against further money printing which resulted from popular Tea Party rhetoric. FED members are fearing of being replaced as an act of political retribution for more money printing. Several candidates have made strong statements, saying they`ll be looking to replace Ben Bernanke and other high ranking FED members.
Others have also argued the case that while US is heading to an election year, likelihood of more money printing is very low during 2011-2012. Revolution fermenting on the streets(in all major US cities) and violent protests are not helping the money printing case either, as money printing would further ignite people on the streets due to higher living costs that would result as consequence.
In case of a world economic collapse(where we pretty much are as we speak), US dollar would seriously appreciate, giving US consumer an edge and calm the spirits on the streets. A perspective that would entice politicians heading into elections.
Printing money at this juncture might be a risk that many won`t be willing to take. Opponents of more money printing can now also make the strong case of previous failures of QE1 and QE2 to really re-ignite the economy. Similar policies undertaken by Bank of England have also failed to deliver.

If we look back at 2008, both gold and silver crashed badly until stimulus started to kick in. We`ve seen silver lose half of its value going from 18 to 9 dollars. I`d say it`s very likely that we`d see a repeat of this scenario unfold again with few minor adjustments such as steeper and longer decline due to factors mentioned above. Also, what many analysts failed to notice so far is that the Euro zone countries that suffer the most, such as Spain or Italy are actually very rich countries. Mr. Richard Sulik, the leader of the SaS party in Slovakia, one that opposed the EFSF, made the case that Italy could easily raise the money by selling some of its huge gold reserve. This might be a last resort option that many are failing to take into account. After Europe would have exhausted all the alternative financing options with the money of other countries, they`ll see no other choice but to finance themselves by selling their ample gold reserves in the open market.( Sulik said Italy should sell its gold reserves instead of also participating in any bailout program. )
If the EU states follow such action and start selling gold, France, Italy, Spain, Portugal will begin to start taking offers on their gold on the open market. It`s pretty obvious what the effect of such move might be. Oh and I forgot to mention ECB can`t print money as EU law forbids it and they`ve even acted on raising interest rates since 2008. While some EU members like France, would love to see money printing by ECB, Merkel and Germany clearly opposes.

So far we`ve seen an interesting price action in gold and silver. They`ve performed on par with the market in general. When market was doing well, based on fake sugar coated news, gold and silver was doing well also, when some bad news surfaced, both gold and silver went down. This trend was broken recently due to false expectations of money printing from Europe( on wishful thinking of France) and false QE3 news coming from US in an attempt to throw a bone to the starving market.
Some say that in times of dire economy, gold and silver are the safe havens. However gold and silver have performed well only in lukewarm times of relative uncertainty. Whenever seriously bad news came flooding in, silver and gold sold off quite heavily. In absence of good news and in the company of dread coming out of media, such as we`re about to soon see as reality has a tendency to hit you in the head, gold and silver should crash on par with the market. Unfortunately, whether you like it or not, best place to be at the moment in whole world is the US dollar and the US bonds.

I`d advise going long UUPT or for the ones with little more risk appetite, start looking for a window to short precious metals. Plays to look at: GLL for gold and ZSL for silver. In the event of full market crash which should be much bigger than one we`ve faced back in 2008, gold and silver might drop much more than they did in 2008. Gold might hit 1000$/oz and silver 10$/oz.

Thursday, October 13, 2011

Investor psychology in volatile times

Volatile times prompt for a better understanding of investor psychology. Following chart is pretty conclusive and enlightening. It sums up pretty well the emotional roller coaster investors and traders go through on daily basis:

Sunday, October 9, 2011

Slovakian libertarian Party(SaS) stands against EFSF bailout package

Slovakian Speaker of Parliament, Richard Sulik is against Slovakia voting for the EFSF bailout package. He`s leader of the  Freedom and Solidarity, or SaS, a libertarian party who`s part of a 4 party coalition that forms the government.

Richard Sulik believes in the principles of the Austrian School of Economics and doesn`t uphold the mainstream idea that the solution to debt lies in more debt.

At the moment Slovakia, a very small country in the EU is last country standing who has yet to decide about the implementation of the EFSF plan to bailout Greece and possibly other EU member states via pumping up(capitalizing) the banks. Slovakia is expected to contribute 10 billion euros to this bailout package, which is biggest contribution of all EU member states using the euro currency in relation to its GDP. 

On October 11th the Slovakian parliament will vote on the EFSF package. Out of the 4 government coalition members, 3 will vote in favor and only Sulik`s Freedom and Solidarity party will vote against. However the socialist opposition will have final word, as their vote will be decisive. The opposition is trying to pressure or blackmail the other 3 government coalition parties to dissolve the government and to hold new elections in exchange for positive vote to support the EFSF package on October 11th.

As Sulik claims, it might all end up in some sort of compromise. Slovakia could support the EFSF package with a vote but not chip in with the required money.
There`s also the possibility of a political deadlock which could in turn derail the whole EFSF project.

No matter the ending, one thing is sure. The efforts of France and Germany have been seriously delayed by the "stubborn" Slovakia and a delay in this case could prove fatal. This might be the reason as to why both Merkel and Sarkozy have announced today that an announcement about capitalizing banks will come only at the end of October. They are probably waiting for a clear outcome and positive resolution from Slovakia.

Lots of things can happen though in 3 weeks. Economy has embarked on a roller coaster ride, one which an EFSF bailout might not be able to stop. Anti-banks protests have bursted out in full force throughout US and they`re also spreading throughout Europe. If they snowball to something significant in the coming weeks, Merkozy(Merkel&Sarkozy) can kiss the EFSF idea goodbye.

I`ll leave you with a video of Richard Sulik making his case against the EFSF: