axelrod608

PIMCO's Bill Gross Sees a Bleak Future

.I expect to see more international trade financed like China and Brazil did recently. Instead of paying each other in US dollars, they will take each other's currency at an agreed upon rate.

As for the view of the future, what happens when a person, family, business or government passes the tipping point where they become unable to service their debt is predictable. The IOUSA has passed that point. And like every empire in the history of the world, we are spending/have spent ourselves to death. It will probably not be a quick demise. Rather, it will be a slow and painful process.

Real wages have not increased since the early 1970's. We made believe we were richer than we really were by the indiscriminate use of credit. An economy with a foundation of credit/debt is a house of cards.

Personally, I find predictions of ANY GDP growth overly optimistic.
Adjusted for inflation I expect to see GDP somewhere between stagnant - no growth - or mild contraction. What the government is shoveling into the system is not "real" money. It's just more of what got us here in the first place.

Wealth preservation ? Gold, productive land like organic farms, businesses that enable people to become more efficient, and NO debt. Sounds downright "unAmerican" doesn't it.

There Are No Good Choices for the Fed

While one can create equations and play with numbers, economics is not a science. There is zero opportunity in the real world to compare "equals" with differing inputs and measure differences in outcome. No, economics is obsevation and opinion.

What I see happening in its most simplistic form is not inflation or expansion of the money supply. It is rather the quicksand model - new money being created is simply replacing the money lost in the latest crash, and faulty, futile monetary policy is the quicksand that continues swallowing it all. What our nation's "leaders" don't understand is the concept of unsustainability.

ZIRP (zero interest rate policy) is a weapon of middle class destruction. Sure, the big corporations - especially big banks - love it. They can fund their casino junkets with essentially free money. Meanwhile, the inadequately educated middle class is charmed by the credit industry into a lifestyle of make believe wealth with cheap neverending credit. Neverending until the bubble bursts.

You don't have to be a rocket scientist to compare interest rates around the globe and notice something. The economies that are doing the best are where you can get a decent rate of interest on your savings account. Japan has had negligible rates for a couple decades now, and look where they're at.

ZIRP is annhililating the American middle class. Until and unless the Fed or Congress make saving a fiscally prudent policy, the economy will, at best, continue to muddle.

On another front, ZIRP encourages the government to borrow vast sums to fuel its totally out-of-control spending. If it cost serious amounts of interest, the government might be less profligate. Might be. Hard to imagine, isn't it.

Finally, if government spending is not curtailed, there is no "recovery" ahead. Just more pain in more sectors. Saving the banking system from collapse does not keep the empire from collapsing.

U.S. Jobs Propaganda Gets More Desperate

Back when I was being trained for intelligence work, I remember a lengthy discussion of the differences between information, misinformation, disinformation, propaganda and outright lies. We used to criticize Russia for their reliance on "propaganda", yet every bit of data emanating from DC is massaged, adjusted and arm wrestled to present the official "line".

If you want REAL jobs data, go to shadowstats.com .

Jeremy Grantham: We Need to Halve Private Debt

What Grantham understands is what escapes policymakers trying to "fix" the problem. Credit, once granted, becomes debt. We are in a DEBT crisis, not a credit crisis. It is debt going bad at an accelerating pace that is fueling the downward spiral. Call it "deleveraging" or what you will, the mechanism driving this recession is debt going from good to bad.

Forest fires are greater in magnitude if the available fuel is abundant. After two decades of cheap, easy unlimited credit, the fuel for this mess is more abundant than ever before. So as earnings plummet, companies cut jobs. The unemployed default on mortgages and credit card accounts, which reduces earnings even more plus adds to bad debt writeoffs Grantham may well get his wish. But what will the US look like with half the private debt ? It appears to be getting ugly fast.

Back in the U.S.S.A.

When money is scarce and expensive, people don't take risks with it. When money is cheap and plentiful they do. Peter makes the point that unlimited cheap money - fed monetary policy for over a decade now - is the driver behind all the ills crushing the economy. 100% dead on target.

And all the stimili/bailouts/guara... are just rearranging the chairs on the deck of the Titanic. The folks at the helm just plain don't get it.

Wall Street Breakfast: Must-Know News

>> "the government would be empowered to seize and wind down any financial company large enough to destabilize the banking system" >>

The government already has a system to do exactly this - bankruptcy. Among the positive features of bankruptcy is that the firm is run by an independent trustee who gets rid of the incompetents who ran the company into the ground. Also, in bankruptcy the firm's books are scoured by forensic accountants to find fraud and abuse and the perps are prosecuted.and put in prison where they belong.

The reason for all the various "bailouts" is to keep the perps that brought our financial system to its knees employed and to protect them from the rightful consequences of their greed, fraud and incompetence.

Our founding fathers thought enough of bankruptcy to write it into the Constitution as the ONLY remedy for incompetent businesses. I think they were a whole lot brighter than the current crop of bailouters and stimulators and financial cretins.

"Too big to fail" is an oxymoron.

Jeremy Grantham: We Need to Halve Private Debt

I have a problem with the neverending growth folks. The idea that we can "grow GDP" at some percentage forever is absurd. Assume 4% and take it forward, say, 100 years. There's not enough resources on this globe to support an economy at that level. And last time I checked we didn't have extra planets to mine.

The worst extension of this absurd theory is when government makes assumptions based on neverending growth. Social security, Medicare, the national debt - all are based on the assumption we will "grow our way out of the problem" that exists.

It's time to use SUSTAINABILITY not neverending growth as the underlying basis for our policies. Policies that work based on sustainability would be enhanced by whatever growth occurs. No like the present mess that unravels when the growth required to make the policy work doesn't happen.

Screw ZIRP. We need zero based budgeting. Get the zeroes right.

Wall Street Breakfast: Must-Know News

I can see both sides of the credit card issue. Personally, my cc is on autopay for the balance every due day - haven't paid any interest ever. But I also worked in Consumer Credit Counseling Services for years and know precisely how ignorant many credit card users are. In a nation where less than half our youth graduate high school, and where basic functional daily living education is not required or even offered, crises in everyday living can be expected.

If we REALLY want to improve education, we need to start teaching courses in basic life skills and functions - personal economics, insurance, law, etc.

Here's What World Markets Are Telling Income Investors to Do

I understand that there are many investing/trading strategies, and what you've outlined here is a cautious one. Personally, I agree since my objective is capital preservation way more important than potential profit. No market has ever gone so far so fast as the current market since March. So it is logical to expect a turndown market correction in the near future.

Dividend investors clearly realize that it takes years of dividends to recoup capital losses. Your advice to take partial positions is good. I would add the requirement of tight trailing stops to defend against losses if the market heads south.

Using the March lows as buy points makes sense for dividend investors. But even if we revisit those lows, trailing stops should still be used if for no other reason than market uncertainty. While many pundits have pronounced the current rally as "a new bull market" I'm skeptical. And I don't have unlimited years left to make up for losses.

I'm up to about 80% cash now, having taken profits from the recent rally. Might I lose some upside potential ? Sure. But I'm satisfied with +30% year-to-date (and I wish I'd done the same last year).

Another good article for dividend investors, Cliif. Thanks.

Jim Welsh on the Economy: Past the Point of No Return

Good comments, John. I too find Mauldin's analysis to be spot on most of the time. Now that the media and government shills have christened "less bad" (news) to be the new "good", investors are walking into a killing field when the next shoe drops.

Every time Bernanke (and Paulson before him) or Geithner (and Greenspin before him) speak, the image I get in my mind is of a fashion commentator describing and extolling the wonders of the emperor's new clothes. They say we're in the eigth inning. I suspect we haven't made it to the bottom of the second yet.

Wall Street Breakfast: Must-Know News

>> "Ties questioned between Goldman, NY Fed." >>

Face it, the entire US government and the Fed are wholly owned subsidiaries of big business and special interests. Big Pharma owns and runs the FDA. Big Media owns and runs the FCC. Big Airlines own and run the FAA. Heck, 9/11 could not have happened if the Big Airline lobby hadn't prevented the installation of secure cockpit doors back in the 1980's when hijackings were common.

Of course Goldman is the single most influential vioce in the NY Fed. Water's wet, rocks are hard and Big Bankers run the fed and the government agencies that are supposed to regulate them. The idea that the US government is "of the people by the people and for the people" is about as current as the horse and buggy.

Send them tea bags and all they'll do is make free tea to go with their other freebies. American voters clearly do not get it. They keep voting in a full slate of Republicrats in every election.

Wall Street Breakfast: Must-Know News

It is seriously disturbing to see the "leaders" of this nation treat two equally unsustainable industries, financial and automakers, with two completely different "plans" to fix them. It appears to me that our policymakers do not understand the concept of unsustainability.

Every financial crisis in the past century has been caused by too much debt. Yet "the plan" is to get credit markets flowing again like they were in the unsustainable years of this new millenium. Do these people not understand that credit and debt are two sides of the same coin ?? Do they not understand that debt levels NOW are unsustainable ??

The auto biz needs to go thru bankruptcy to shed debt and legacy costs. The financial biz needs to go thru bankruptcy to shed debt. Both are unsustainable as currently structured.

But what galls me most is the way our leaders are funneling massive amounts of taxpayer money into the financial sector with little or no concessions required - the fat cats and employees who trashed their companies get to keep their jobs with full pay - while the automakers - people who actually MAKE SOMETHING OF VALUE - are faced with loss of pay and benefits. Do the financials get to keep their fat salaries, bonuses and health plans ? Yes. But public policy wants to slash the autoworkers pay and health plans. Go figure.

Finally, when the logical consequences of this public policy become clear those who haven't thought this thing through are going to be outraged. If you think the current federal spending is outrageous, wait until the autoworkers' pension and health plans get added to Medicare and Social Security.

DC, we have a problem.

Wall Street Breakfast: Must-Know News

AIG may post the largest corporate loss in history and wants more public money to shore it up. What if AIG is BOTH too big to fail AND too screwed up to succeed ? The choices being made in DC worry me.

Manufacturing Collapse Reminiscent of Great Depression's Beginning

>> "an equal number of blogs which tell us that today is 'the investment opportunity of a lifetime.'" >>

It is important to keep in mind that it's not an either/or proposition. Many fortunes were made during the Great Depession. In ALL market conditions there are winners as well as losers.

Even if the economy tanks, there will be companies that do well. The challenge is to find the gems in the multitude of losers. The process never changes but the odds get slimmer as the economy gets weaker.

Are Unemployment Numbers Bogus?

Every time I see a report or conclusion based on data, I am reminded of the old book, HOW TO LIE WITH STATISTICS, the theme of which is "you can prove - or disprove - any premise with data."

Thanks, John for your usual in-depth analysis of shortcomings in unemployment data. Here's one more -

My daughter graduated from a prestigious eastern university last week. Less than a third of her graduating class have professional jobs waiting. You won't find that anywhere in the reported data.

One other comment - I'm seeing more and more seventy-somethings and even eighty-somethings working in the supermarkets and retail stores. Who gets displaced ?

The structure of this economy is coming apart at the seams, and the data won't indicate even a hint of that.