What's the largest Sovereign Wealth Fund in the world?

Your first response was probably China, Saudi Arabia, or Singapore, but you would be wrong. The largest SWF in the world is the TARP. Yes, Uncle Sam has just hung up a shingle. And the the first quarterly return is officially on the books. All I can say is, "Wow!" With a 4% clip in Q4, this annualized out to 16%. So what is the government buying? Bank preferred and MBSs with a ton of warrants for an upside kicker. To all the hyperinflation gold bugs, how do these profitable returns work into that scenario?

Every once in while, I try to enlighten the gold bugs. It's a process I relish with as much joy as trying to explain to my daughter there is no Santa Claus, after she learns from her classmates she has been duped. The markets by their nature are full of people with less than perfect or imperfect information. And the beauty of this conundrum, we all assume that it's the other party being duped.

This by no means is scientific or deeply analytical, but the most prevalent opinion about the direction of a market is often wrong. But momentum riding is a very profitable trade, as long as you find a greater fool. It has become the single most popular belief that the dollar will decline in value significantly in 2009. It's absolutely mainstream like peak oil, the new technology paradigm, the great BRIC society, and a host of other supertrends. The problem with the dollar argument is the dollar is rising despite the assumed quantitative easing of the federal reserve. The dollar is gaining strength day by day, and gold bugs continue to trumpet the collapse of the fiat.

Before you fall over in disbelief, let me explain that the title of this article is conditional. The legacy costs of [[GM]] are staggering. Too much debt, too underfunded defined benefit obligations, too many dealerships, too long before labor costs are competitive with foreign automakers, too much inventory, too much capacity, too much bureaucracy, and finally too little time to fix these problems.

So how can GM be the next great American growth story, and NOT just America's problem? There has to be a mandate change. The status quo is not an option, and all parties with a vested interest must be willing to accept a new direction. Contracts, debt, and agreements must be exchanged for a new common equity. The old equity will be dissolved, and the current common holders will be given a token of the new equity in exchange for expedited approvals. Each of the parties would be given a percentage of the new equity based on an arbitrator's assessment of the parties' contribution and claims against the old company. GM and Chrysler will be merged allowing for another round of expense reductions. Labor would be paid a fair wage, but they would receive bonuses based on the profitability of the new company. Stakeholders would derive their benefit from the success of the new equity.

It's official. The greenback is back!

Why would I say that when everyone is calling for its collapse? I mean after Helicopter Ben all but sent the greenback over the edge by cutting the fed funds rate to zero, why would anyone own anything but gold?

These days, the only thing I know for sure is that fear is as overbought as ever. This is starting to get ridiculous: 30-year treasuries below 3%; gold up for the year; and risk averse investors paying Uncle Sam for the right to carry his wallet. Before I try to explain my position, let's just say I have a healthy dose of skepticism by all things spewed by insiders, lawmakers, central bankers, and media types.

The two ongoing fear trades are treasuries and gold, and both have had a very good 2008. It's not rocket science to say they should have a very difficult 2009. At some point, people will tire of being afraid. And when......and I mean 'when'...this trade reverses, the pain will be very bad. I understand the central bankers have entered a new paradigm of 0% fed funds, but what are real rates? And real rates are possibly scary high; in fact...maybe...contracting monumentally. What is the Federal Reserve running from? With the proverbial kitchen sink action today, is the Fed fighting a full scale deflation war? Gold looks very vulnerable and deflation is a huge risk to this metal.

Do You Know Where Your Money Is?

On CNBC, Maria Bartaromo asks this question every day on her show, Closing Bell. Well, many investors are asking that same question after the revelation of the $50,000,000,000 heist by Bernie Madoff. Can you even get your mind around that number?

Let me say upfront I'm long [[UYG]], and I'm getting my financial 'head' handed to me. The game plan for me has been trying to catch this proverbial 'bloody knife', but there needs to be a transfusion fast. When Capt. Paulson of the U.S.S. Financial Disaster recanted in the name of changing facts, Mr. Market was NOT amused by the sudden discovery of new information.

Its obvious fundamentals are atrocious: ABX new lows, housing crumbling, Big '3' begging for a bailout, and retailers looking more like museums than bastions of prosperity. So why would I be long UYG? Because I 'thought' I saw a bottom. Well, if you haven't noticed, the new lows, created since the October 10th lows in the Dow, are noteworthy. These companies are lower now then on October 10th: [[GE]], Bank of America (BAC), Citigroup (C), Research in Motion (RIMM), Microsoft (MSFT), Intel (INTC), Google (GOOG). It seems to me the DOW and S&P 500 could see 6,000 and 600, respectively. The financials since October 10th have been horrible. And if the financials don't catch fire in a hurry, I quote GW, " This sucker is about to go down."

It's being reported that there is very little supply of small quantities of gold. In fact, what little supply available is being bought for $100/oz. Over spot prices. It appears the small guy knows something the commodity markets do not. It makes you wonder if gold bugs have ever heard of deflation. Truly, the modus operandi of the financial markets has been inflation for nearly 70 years, but it's deflation that could unhinge the economy. It's hard to argue inflation with companies like GE (GE), Citigroup (C), Eastman KodaK (EK), Intel (INTC), and host of others selling at more than decade lows, not to mention the massive dislocation in the financial arena.

Here's a question for you: who's going to have the cash to buy your gold? The system is up to its neck in debt, maybe someone could exchange their mortgage for 100 of your gold coins. Your gold is reflective of wealth, and I don't know if you've noticed that there's less of that around; like $9,000,000,000,000 less as of last calculation.

Why is Wall Street inherently conflicted? Greed and power should surprise only the feeble minded. When I started in the financial services industry, the concept of a Chinese wall was laughable. Yet, Wall Street plugs along decade after decade under the false assumption of self-regulation protecting the public from double-dealing. Wall Street's highest paid are responsible for abdicating their fiduciary positions in the most recent credit crisis. After experiencing the collapse of the financial system, I'd like to play Dr. Phil. How's that working out for you?

It's NOT working for me, to be quite frank, and I believe many investors share my disgust. Everyone loves transparency in everyone but themselves. Never is this statement more true than on Wall Street, where honesty and trustworthiness are weaknesses. Anyone who has run a business can attest, somewhere along the line your integrity will be challenged. During an interview with a wire house I was questioned by an executive of the firm. He asked, “ Are you honest, loyal, and committed?” Well, I answered quickly, “Absolutely.”

If you are unfamiliar with deflation, you are not alone. In fact, the past 80 years has been the antithesis of deflation.....inflation. Inflation is as American as apple pie. A right of passage from one party to another, or one Federal Reserve Chairman to another. We are not surprised by inflation, but we, the people, have come to expect inflation. In economics, we call this the expected rate of inflation. How can inflation be so ingrained in our collective psyche? Because the Federal Reserve's very ability to control assets depends on it. So why would Chairman Bernake place the entire system in harm's way?

Every so often the bankers are faced with a problem that only deflation can solve. And so enters the pit bull of the Fed. A pit bull is a ferocious and vicious defender of its owner, but non-owners beware. What is the biggest fear of Chairman Bernanke and the money center banks? Deflation! So why play the dangerous game of releasing deflation? Control is the purpose of deflation. The Federal Reserve has lost control of money due to the shadow banking system. This is NOT acceptable, thus the "pit bull of deflation".