March 24 (Bloomberg) -- China’s call for a new international reserve currency may signal its concern at the dollar’s weakness and ambitions for a leadership role at next week’s Group of 20 summit, economists said.

Tomorrow marks an important economic decision regarding FAS 157 and mark-to-market accounting. This is going to be another reason to, at the very least, question government intentions. The following is a complete look into how mark-to-market accounting has affected the banks, and what the real intentions behind banning FAS 157 really are.

As it well documents, credit default swaps are derivative products. That’s just a fancy way of saying that CDS are purchased with leverage. In other words, you can sell $100,000 of default insurance while holding $2,500 of capital. Being that these products are currently (not for long) marked-to-market, the value of the derivatives are derived from the price they can receive by selling them on the open market. This is where all of the problems regarding bank earnings and problematic debt to capital ratios come from. Let’s think about it in a different way.

I wouldn’t be letting the cat out of the bag if I mentioned that I’m a commodity bull in both the near and long terms. It’s no secret as I’ve spent a number of issues of Bourbon and Bayonets writing on the driving fundamentals behind resource markets. That’s not what I’m here to do today and if you’d like to hear some of the market commentaries refer to prior articles. Identifying the fundamentals is one thing. Investing to profit is another. Regardless of your investment medium, there are a number of different strategies and notions to keep in mind in playing the rest of this commodity bull run.

Call it what you want: commodity, tangible asset, or raw resources. Across the board, I believe that if we eat it, build with it, or heat our homes with it, it’s going to rise in price. If someone (like me) is a commodity bull they essentially believe that monetary inflation is going to outweigh the deflationary effects of a global recession. In my opinion, “outweigh” is an understatement, but it does speak to the notion that the underlying fundamentals of the commodities market are pulling in opposite directions.

There was something about the article I wrote last week for Bourbon & Bayonets that touched a nerve with a lot of people. There wasn’t a lot of middle-ground; readers loved it, hated it, or were annoyed with me for complaining without proposing a solution. I’m glad I was able to stir the pot and get something controversial enough on paper to bring out the passion on both sides of the arguments. This article isn’t written to further my points and persuade those who disagreed with me. Instead I want to propose what I see to be the best potential solution to a very difficult problem. I agree with the readers who took issue with my empty complaints. Today’s article is written for those who see the problems, but wonder what choices or alternatives we have to current policy.

Given all of that, there’s no easy solution to our current mess. I wish there was a simple solution, but there isn’t. We have cornered ourselves through decades of loose monetary and fiscal policy with those practices being taken to a recent extreme. Essentially we have left ourselves with two potential roads that probably lead to the same location. The two roads are inflation or deflation. I’ll elaborate…

During the work day I usually keep CNBC on to see if the talking heads are doing something entertaining on any given day. Usually I keep the volume low or muted until a story or person of interest pops up.

I love to analyze gold in issues of Bourbon and Bayonets, especially with a focus on the macroeconomic issues that are extremely bullish for our favorite yellow metal. The economic crisis and complete lack of competence from our leaders has resulted in a current financial climate that will result in the most fantastic run the price of gold has ever experienced. The quantitative easing around the globe is definitely the greatest single bullish fundamental that will drive gold going forward. It’s not the only reason gold will rise in price, but it definitely carries the most weight.

The thing is, gold is a sort of hybrid investment vehicle. Essentially it’s part commodity part currency. When I discuss things like monetary inflation and the stimulus package, I’m referring to the aspect of gold that acts as a monetary vehicle. I absolutely don’t want to downplay that importance of this notion, but it’s not the whole story. Gold, like all other assets, is affected by supply and demand fundamentals. Monetary issues may be the driving force behind gold, but looking at supply and demand figures can be very telling, especially in the short run. In this article I am going to dig through the recent 3Q global S&D figures released by the World Gold Council. The numbers are very interesting.

Let me ask you something. How many times have you heard a bottom called in a market...any market? I mean, it's amazing that not only are these people still allowed to publicly express their opinions, but people still listen to them as well.

It shouldn't be that surprising. Almost every Tom, Dick, and Harry with an Ameritrade or Schwab trading account doesn't have a clue what's going on in the stock market or any other financial market for that matter. So I guess the advisers and analysts that they get their advice from only have to be slightly more intelligent.

Doom and Gloom, Get it Straight!

There will, before long (my best guess is between two and five years from now) be a global dumping of US dollar assets, including US government assets. Old habits die hard. The US dollar and US Treasury bills and bonds are still viewed as a safe haven by many. But learning takes place. -Telegraph 1/6/09

Jan. 5 (Bloomberg):

President-elect Barack Obama’s economic stimulus package will include hundreds of billions of dollars worth of tax breaks for individuals and businesses, according to a transition official and Democratic aides. Obama is asking that tax cuts make up 40 percent of a stimulus package, the people say.

It's that time of year again. The obese pledge to hit the gym, the drunks plan to switch to soda, and the smokers will run to the nearest convenience store for their nicotine patches. As is the American way, very few of those who confront their self proclaimed character flaws will have the fortitude to see their goals through.

I have been asked several times over the past week or so if I've made any New Year's resolutions. I usually answer that question with a simple no, but it's not entirely true. You see, 2008 was a big year for us because of our ability to analyze and foresee what's to come in financial markets.

The Treasury Department said Monday that it will provide $5 billion to GMAC Financial Services LLC (GKM), the ailing financing arm of General Motors Corp. (GM), from the $700 billion bank rescue program (The Huffington Post).

GMAC will also potentially receive up to $1 billion from the Treasury in the form of an equity purchase. Shocking right? Not if you have two eyes and can read beyond a 4th grade level.

The financial analytical business is one of comic and irony. During prosperous economic times, the aggregate success of financial analysts' ability to make their clients money is very high on a percentage basis.

When the economic worm turns, the field of financial analysis turns into this sort of absurd puppet show. It's really a simple notion. It's just easier to make money in bull markets.

My patience for utter stupidity and incompetence is growing slimmer with each passing day. I've gotten extremely sour and impatient with the morons that love to hear their own voices and have others think of them as capable of independent thought. The problem is that I'm completely surrounded by it. It doesn't matter if it's local media, mainstream financial media, a friend of the family, or the janitor at work.

For those who do like to discuss these things with me, or while I'm within earshot, they've probably noticed my disdain by the tones of my voice or simply my body language. I don't do these things on purpose, but I no longer consciously try to subvert these subtle actions. I've simply reduced my responses to near one word answers and avoid anything that might entice the person I'm talking to into extending the conversation any longer than need be.

I've spent a lot of time recently writing about the macroeconomics behind what's been going on. I've been essentially putting the blame right where it belongs, on Keynesian policies and the regulators who have enacted them since the Great Depression.

During this period, I've also been discussing the last great bubble in U.S. Treasuries and what that means for the United States' ability to do, well...anything. I would like to note that we at Oxbury Research were on this story several months ago. Long before it got any of the publicity that you hear about semi-regularly now.

Dec. 8 (Bloomberg) -- President-elect Barack Obama is focusing his economic recovery strategy on making the biggest investment in the nation’s infrastructure since President Dwight D. Eisenhower created the interstate highway system a half- century ago.

Markets cheered, analysts applauded, and I...cleaned up the bits of vomit that didn't quite make it into the toilet, but this IS the "New" America...or is it?

In recent issues of Bourbon & Bayonets I’ve discussed some of the costs of this bailout from an academic standpoint. I looked at how this bailout was the result of Keynesian economics whether that’s what it was called or not. A Keynesian run economy is one that may last for many decades before it finally tips.

The most blatant sign of a Keynesian based economy are the business cycles. That’s right; the business cycle is not a naturally occurring process. It is the direct result of liquidity expansions during economic downturns and liquidity contractions at economic peaks.

Dec. 1 (Bloomberg) -- Treasuries rose, pushing yields to record lows, as Federal Reserve Chairman Ben S. Bernanke said the central bank may purchase Treasuries and target long-term interest rates to combat the deepening recession.

And the monetizing of debt begins. I've talked extensively in several issues of Bourbon and Bayonets about the coming turmoil in long dated U.S. treasuries.

In the first two parts of this series, we identified fundamental economic weaknesses that running a Keynesian based economy have brought us. So the next question is figuring out when the critical point will be, and what it will look like. In short, we’re looking at it as we speak.

Let’s start with the ‘when’ of the equation. To put it in its simplest form, the critical point our Keynesian economy will be at is when the U.S. completely lacks the ability to sell any of its debt, and consumers are unable to take on any more debt.

For the second part of this series (see Part I here), we are going to start by looking back at the three farmer scenarios.

In today’s society, the three farmers have, for a while, experienced a period where the monetary base is growing enough to keep up with the debt that needs to be repaid. The problem is that available credit has dried up.