mr freddo

The Rally, When It Comes, Will Be a Doozy

This is a once in a century event so I don't believe that looking at cash levels is a reliable indicator of a rally. Any cash that is sitting on the sidelines at this point is damn happy and lucky to be their instead of riding out the equity debacle like a great deal of net worth is doing these days.

That cash sitting out there has only one thing to fear right now and that's inflation. Look for some of that conservative cash to move into gold later on this year when inflation starts to roar.

Washington's Dilemma: This Isn't a Recession, It's a Collapse

Americans, Californians, our problems are solvable over the long run if not in the short run.

In life, one is rewarded for creating, whether a broadway play or a big mac. Our world economy is based on the interactions of those created values. Those that create extraordinary value are rewarded extraordinarily.

In America and California, in an effort to maximize our comparative advantage, we funneled our very best and brightest minds of our generation into finance. The engineers were shunned, and engineering jobs were exported. Thus we forgot what we knew while teaching the rest of the world how to catch us quickly.

We weren't too concerned. We kept churning out new financial products and believed that the financiers are the real masters of the universe.

What we now realize is that a great deal of the growth in finance was based on false premises. 1. That you can take a basket of turds, squeeze hard, and create diamonds. 2. That you can alter the basis rules of personal finance and own a million dollar home with an income of $50 thousand a year. 3. That you can allow bankers to become salesmen and still not lose capital.

To return our state and nation to greatness, we must immediately begin to build our future businesses that will create real prosperity for the 21st century. These companies will be technologically driven, will rely on domestic employment, and will start from nothing to become dominant world beaters in 20 years. They will serve as platforms of innovation spinning off new companies and creating new markets.

These new companies will create a new class of wealthy capitalists, men and women trained to make money by taking risks, applying technology, and building strong stateside businesses that act as engines of employment for our citizens.

So let's stop whining about who is to blame. Why we failed. Why we are doomed. WA WA WA!

Let's start moving toward the solution, the answer, the bright light. Our clueless legislators, should start asking venture capitalists, entrepreneurs, scientists, and engineers what they need to get the pipeline of new companies rolling now so that we will have successful, exciting world beaters that employ our children and grandchildren.

The Great Awakening: Boomers, Your Crisis Has Arrived (Part 3 of 3)

I believe that the future hasn't happened yet! It is completely up to the individuals alive now to create the future. Nostrodamus does not control our lives nor does this 100 year theory. We are free to make decisions and profit or lose from the decisions we make. Rest assured no matter how things turn out, someone will try to cram it into a predictive model like the one the author describes.

In the past, people married earlier and didn't live as long. Generations came every twenty years as opposed to every 30 years today. Is that factored in to this formula?

What about Russia? They had hard times starting in about 1900 and, they suffered for 90 years until communism was overthrown.

Africa? Suffering now, in the past, and into the future.

Great Britain? They were the world's super power at the turn of the century, lost it after World War II, and have not recovered.

Iraq? They ruled 5000 years ago but haven't been able to make much of a dent on the world since.

No, I don't think this theory holds water. What you can say about human history is that there is struggle, success, expansion, indifference, apathy, breakdown, struggle....

The Great Generation came out of WWII with a strong desire to get married, have a family, work hard, and not be shot at. They gave birth to the Baby Boomers, a generation that is more self absorbed, has higher expectations, enjoys life, and still has some sense of values that were taught to them by their parents. The Boomers gave birth to a generation that wants it all without having to sacrifice, They expect it and are surprised when it isn't given to them. (apologies to all who are sacrificing every day like our service men and women overseas in harm's way).

Eventually hard times hit and a generation is forced into action. The survival of the crisis changes that generation and provides them with a strength that is evident to all. The material things don't matter as much. The luxurious comforts are thrown aside. Family becomes the most important priority.

We are wrapped in a crisis of great magnitude that has not even begun to have its effects on society. The streets are still safe, (mostly) there is food in the stores, and our dollars are still good. It will get worse before it gets better. But 10 years from now, it will be over. We are not doomed!

12 Reasons to Short Gold

Thanks for a great article. I get nervous when there is no one speaking for the other side.

In the long run, the author will be proven correct. Gold will eventually drop from its highs as the world economy starts chugging again. But while the author predicts a light ride and a quick turnaround with gold retreating from current prices, I predict a long depression of at least 5 years with gold reaching $5000 per ounce before retreating from that high.

It will take years for this economy to unwind and then, finally, start to recover on a new base. Earnings will be dismal for many quarters and the banks will continue to lose unbelievable amounts of money. The Commercial Real Estate Market will fall apart later this year as will consumer debt. Derivatives will turn billion dollar losses into trillion dollar losses. The government will continue to stimulate to no avail. Federal debt will skyrocket, as will interest rates. The dollar will decline and inflation will roar.

But gold will hold its value through it all.

Obama (Should Say) to California: Drop Dead

I agree with Peter that California needs to solve its own problems and not be saved by the federal government with a bailout.

Anyone who has run an organization knows that when hard times come, cutbacks in spending must occur. In good times, spending can be increased on priority items but carefully, and only after the organization's financial health has fully recovered. The memory of the previous crisis should be a strong teacher.

I recommend that The Governator consider the following mix of solutions to the budget crisis:

1. Lay off 15% of the state work force in all administrative departments. No layoffs for first responders.

2. Cut pay for the remaining workers by 15%.

3. Bring back the automobile license tax which would generate $5 billion.

4. Legalize pot and tax it. If run properly, this would generate $5 billion.

5. Change sentencing laws to make non violent criminals more self-sufficient. It costs the state $60,000 a year to lock someone up.

6. Reduce retirement benefits and increase years of service for government workers. Who in the private sector is able to get the type of gold plated retirement benefits that government workers receive? We simply cannot afford it.

7. Increase cigarette and liquor taxes by 500%.

8. Legalize and regulate prostitution and gambling.

9. Sell off shore drilling licenses.

10. Reduce pay of legislators by 50% during crisis periods.

11. Reign in the voter initiative process which only serves to mislead and confuse votors.

12. Reform campaign financing so that the influence of lobbyists is reduced.

If the state gets a bailout, the politicians will continue to take the easy path which is to avoid painful cuts and continue to spend money that isn't there.

Barron's Takes Down Cramer, Again

Cramer speaks to the herd. When he talks the herd listens. When he finally discovers a stock and touts it, you know that this stock is ready for a correction. Therefore, there is some logic to doing the opposite of what Cramer recommends.

In December 2007, I was totally incapacitated by a back injury. I watched Cramer, Kudlow, and Fast Money practically every day. I can tell you that Cramer often takes both sides of a bet and then later tells you he picked the right side. I kept a model portfolio of Cramer picks. It is down 55%. Kudlow kept talking about the goldilocks economy and his belief there would be no recession. Fast Money was the funniest. All these people talking a mile a minute made me miss Louis Rukeyser. And I remember Ben Stein soothingly saying that Sub prime was not that big a deal.

Eventually, expensively, I realized it was far better to do independent research and not be swayed by the pundits. I get far better insight from sources like Seeking Alpha.

This Is Just the Beginning

Certainly Peter Schiff has been spot on in his macro economic analysis with the exception of the dollar decoupling. When Lehman went down, a US financial crisis turned into a global crisis and investors ran to the safest haven, US Treasuries causing a drop in interest rates and a dollar rally.

If Peter is right about the future of the dollar and the US economy, I don't believe that we will be able to hide in foreign dividend stocks as Peter recommends.

As Lars 39 mentioned, the only investments that will be of value if Schiff is correct are gold, beans, ammo, and bourbon. Foreign stocks will get fried along with everything else.

Just the other day I did go out and "invest" in canned foods. It doesn't hurt to be prepared if this crisis gets out of hand. A run on the banks is a possibility and in that event, banks would close for an indefinite period and credit cards will not be honored. I don't believe that this has a high probability of happening. But when it comes to food, it is better to have it and not need it.

The Worst Case Scenario (Someone Has to Say It)

What, no flesh eating zombies?

How the World Almost Came to an End on September 18, 2008

I have been advocating that people make sure they have adequate supplies on hand in the event that the banks close for an indefinite period. It sounds like science fiction but, as you can see from the above article, it could happen and it could happen quickly in our electronic age.

Cramer Grilled on Jon Stewart

That was a great show. I give Cramer credit for showing up and taking numerous shots to the head without trying to strike back.

Cramer has a basic problem in that he is entertaining people with a show that goes on 5 days a week. It wouldn't be much of a show if he came on and said, "look people, diversify into these 5 or 10 etf's, keep contributing no matter what, and then, don't worry about or watch it. It will go up, it will go down, but it should go up over a 5 to 10 year timeframe. Thank you. End of show."

He has to stoke it! Jump on it! Go crazy when the market is tanking, and go crazy when the market takes off. He wants action so he can create excitement and keep viewers. For the average investor, trading in and out is a recipe for disaster. But he has people who would otherwise be doing the smart thing, trading stocks and looking for short term action.

With 2000 stocks in his head, his analysis will be trite and shallow. He will only know what is very common knowledge.

But hats off to John Stewart for really turning the screw on Cramer and the whole bunch at CNBC. The show I think does even more damage is Fast Money. Everyone talking a mile a minute like they're doped up on meth. "Did I say sell? I mean't buy! Sell was yesterday! Buy tomorrow at the opening! Sell at 11! Buy back options at 12:30! Sell puts at 1! Long term (over the next 10 hours) this should reverse on a technical! Etcetera.

Where is the show featuring someone like Louis Rukeyser who exhibited a calm demeanor and tried to get behind the day to day ups and downs to help investors decipher the markets?

Every stock broker knows its easier to sell a bull market to the populace. Even though you hear a great deal about short sellers, it is not a strategy employed by the average investor. Hence the entertainment shows will always have that bias of goosing the bull. Market is up people! Tune in at 8 for tips on how you can profit! Don't miss out on the easy money! Don' t be a fool! Easy money here! When bear markets take hold, the average investor throws in the towel and goes away.

Don't Ignore Bernanke's Bell

I don't think the outcome is as plain as you describe it Peter. Right now we are trapped in a deflationary death spiral. Yes the Fed has just pushed the money throttle to the limit. When you are stalled and spiraling downward, do you really care about miles per gallon?

Ben's theory is to get the heart of the economy pumping again and worry about inflation later. His decision to lower interest rates and make mortgages cheaper is a direct assault on the housing market slump.

He believes the crisis won't end until real estate prices turn around.
If he succeeds in establishing a bottom, the endless flow of mortgage defaults will slow and the mortgage backed securities market would stabilize bringing an end to the endless stream of write-offs at least for this loan class.

Turn around real estate and you turn around the stock market, turn around the stock market and you go a long way to making the consumer more confident.

This much cash sloshing around is bound to be inflationary once our economy springs to life. Ben figures that is a problem he will tackle down the road. Inflation, after all, favors the indebted and the US GOVT owes more than any other entity in the world, therefore has the most to gain from inflation.

America's Banks: Are They Really Insolvent?

I think Sentinal hit the nail precisely on the head. The banks are broke. These derivative contracts are so complex that nobody knows how to value them or what the risks are. Suffice to say, that when they were entered into, nobody expected them to be subjected to this environment. The risk model never took into account our current situation.

I saw the headline yesterday about European banks holding $24 trillion in toxic assets. That gives you a hint at how big the problem is in the US. It is so big that the US Government simply cannot afford to pick up the tab.

Do we really want to put up $10 trillion to $20 trillion to save the old banks? I'd rather invest that capital in a new financial system.

Ray Dalio: A Long and Painful Depression - Barron's Interview

The D word is starting to be dropped more frequently. It wasn't very long ago that the pundits were arguing that there would be no recession.

There is a sense of disbelief out there. Everyone wants this event to be over so we can get back to the old way of life.

With such a bleak assessment, I am surprised that Dalio believes it will be time to buy in late 2009. From his comments its sounds like the time to buy will be about 2015, if you're still around.

Dalio is another voice for gold, although he seemed to hedge with his words of "imagine" and "might."

This week I'm going to be buying beans and storing them in a safe place just in case there is a run on banks and they close for an indefinite period. After all, the last time the banks were closed was the Great Depression.

The End of Gold, Part Two

I like the thought process that gold is 1. a commodity that has been swept up in the deflationary decline of all commodities, and 2. a currency of last resort.

Given that our world financial system is in ruins, and more real destruction of the main street economy is ahead, I am confused as to why gold hasn't skyrocketed already. I know relative to everything else, gold has retained it's value which is quite an accomplishment in this environment. But if investors know this, why hasn't everyone moved into gold?
I believe that the central banks are keeping the price of gold down to retain the viability of the financial system. After all, if everyone buys physical gold and buries it in their backyard, can you imagine the sucking sound you would hear on Wall Street as investors essentially removed their money to bury it in the back yard?

In a time of crisis, gold may be the best investment for the individual but the worst investment for the economy.

My personal opinion is that one day we will wake up and the banks will be closed for an undetermined amount of time. This will probably be brought on by a huge wave of losses from insurance companies and banks that will trigger more derivative losses, which will create a massive run on the banks. So they will be closed and investors will not have the ability to access their funds.

That's the day I will kick myself for not having stocked up on canned beans and silver coins.

Let's all hope that I am wrong!!

AIG's Blackmail Note

My favorite quote:

"Insurance is the oxygen of the free enterprise system."

I don't doubt that much of what AIG says is true. Their demise would be a calamity for the financial system. The question is:

1. Are we headed there anyway so why not save our taxpayer money to help build the newer, saner, more regulated system.

2. Why can't the government force a prepackaged type of bankruptcy to break free from some of these boneheaded employment contracts.

Maybe that is throwing the baby out with the bath water but it is completely unacceptable to reward these executives in any way for a job well done when they blew up the company and the financial world with their outrageous behavior.

Why don't we just breeze a tax change through congress that says if you work for AIG and you received a bonus, your tax rate on the bonus is 100%.

Also, for shame Mr. Paulson, for shame. You engineered this TARP bale out with great secrecy and now we know why. It should have been called CRAP for Crony Asset Protection act.