Seeking Alpha

goatmug's  Instablog

goatmug
Send Message
Former trader and portfolio manager. Goatmug now invests his own portfolio and writes in his blog about the economic factors that influence our investment selection and timing.
My blog:
Goatmug Blog
  • 1.1 MILLION NEW GUESTS ARE INVITED TO THE PARTY! (by Goatmug)


     


     

    WOW!
    That is pretty much all I can say this month as we get a view of the monthly SNAP (Food stamps data for May 2011).  Wasn't it just one month ago when I was gushing all over this recovery saying that this could potentially be the inflection point that we all had been looking for?  Didn't the trustworthy data from the Ministry of Truth show a decline of SNAP costs in April?  Wasn't the slowing pace of growth in January, February, and April the affirmation that our hopes had finally found a home?  Well, clearly, the answer is NO! 
     

    RECORDS YOU DON'T WANT TO BREAK
    SNAP data for May shows that plan enrollment increased by a whopping 1,105,217 people which is an increase of 2.4% over the preceding month.  This is the second highest participant growth reading in my six years worth of data AND is the highest monthly percentage increase ever in that time frame!  The greatest increase was in September of 2008.
     

    LOW LIGHTS 

    • This month's data shows a 3.5% year-to-date increase in participants.
    • Costs for the SNAP plan increased by $172 million this month to $6.1 Billion.
    • 45.8 million people are in the plan which is now 14.9% of the nation.  That is 1 out of every 7 people on the government dole. 

    THE BIG PARTY!
    Apparently the government is inviting everyone to this awesome party.  We've got 1.1 million new guests all decked out and ready to celebrate the greatness and largess of the good old USA.  One out of every 7 people in the US!  I guess the only question we have to ask ourselves now is who is this party for?  Who could possibly mobilize so many people and create such excitement?  The party is obviously for our wonderful President!  He does turn 50 after all and no one wants to miss a beautiful occasion and an opportunity to fawn over our beloved leader.  The guests just can't get enough of the party favors and goodies, it almost seems like they could do this party every month, and why not?  It doesn't cost them anything? (Last rant here I promise.   Are you kidding me, people really celebrate his birthday!?  Are we done with the worship of him yet?)


     


     

    GOATMUG
     

    ´╗┐´╗┐Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

    Aug 04 3:53 PM | Link | Comment!
  • HOW GOLD & SILVER MAY COLLAPSE IN A SOVEREIGN CREDIT APOCALYPSE (by Goatmug)

    TRADITION
    As readers know, I've expressed a fondness for gold and silver as an asset class for a couple of years now since August of 2009.  The reasons for this affinity is that our Federal Reserve has had little concern for preserving the value of the US dollar and therefore gold and silver have become a safe-haven as an inflation hedge.  Europeans also like the glittery stuff and have favored it because the sovereign debt issues in the Eurozone have forced them to use gold and silver as the un-currency of choice.  Individuals in emerging countries also have looked to gold as a store of value in an effort to fight inflation in their nations.  In other words, Americans, Europeans, Brazilians, Indians, and Chinese have all purchased gold because in a way it is a store of value for their assets.  The question remains though, why do central banks own gold? 

     

     


    DESPITE HEIR BERNANKE'S ASSERTION THAT GOLD IS NOT MONEY, EUROPEANS THINK IT IS -

    After the Greek debt crisis and the Italian sovereign credit rating issue, Europeans are not messing around with their assets and hoping for the best, they are planning for the worst.  While Ben Bernanke suggests that gold is not money, Germans certainly think it is valuable (whatever you call it).  Please see the following article; I've used Google Translate since the original source that is linked is in German. (WELT ONLINE -)

    The buyers of gold are driven by worries about the future of the euro zone and the euro. After the doubts about the creditworthiness of Portugal and Ireland now also come to doubt on Italy's creditworthiness.  In the past five days Pro Aurum has sold gold worth more than € 21 million - three times as much as in "quiet times".

    Gold is much more than a commodity," said Barbara Lambrecht at Commerzbank Rohstoffanalystin. The present development shows that gold is not only a hedge against inflation but an anti-anxiety indicator against the dollar. "Gold is a currency that is currently benefiting from the weakness of the two key currencies, the dollar and euro."

     

    NO BRAINER, BUY GOLD HUH?
    Well, maybe.  As you recall I made a confession that I've been trying to buy gold since $1475, but never got an entry that I had targeted (regret is dripping off of me).  Although I haven't added to positions I am still going through my normal process of wondering how this trade could blow up and I believe I've found one.  Margin calls. 

    HOW MARGIN CALLS UNDO A GREAT TRADE
    Let's think through this cataclysmic scenario that all gold and silver buyers are essentially betting on (ok, not all, but the Mad Max types).  We wake up one fine morning to find out that the Irish or Greek citizens have had enough and they have essentially overthrown their governments and ousted them through a bloodless revolution of sorts.  Let's call it a Debtor's Spring.  The New People's government renounces all claims to debt by the ECB, IMF, and foreign banks and labels it "odious debt" meaning that it was debt that was corrupt and not for the benefit of the people (google odious debt).  The revolutionaries halt all principal and interest payments.  That declaration sets off a chain of events that tears the Eurozone apart and damns the Euro as a currency. 

    In response, global markets tank, the Euro is trashed, the USD goes higher, and oddly, gold and silver do moonshots in the wake of the carnage.  The tremors of the collapse are felt world wide and within days fear has a firm grasp on all developed economies.  As banks work through their exposure to the worthless debt of European countries, gold and silver begin to sell off strongly.  Why the fall?  Margin calls.  As investment banks, hedge funds, insurers, and commercial banks all attempt to sort through the tangled positions (many of which are levered) they get calls from worried counterparties demanding collateral payments.  As they attempt to cough up cash they will sell as much of the remaining valuable stuff as possible, meaning that gold and silver and commodity positions are liquidated at a furious pace.  

    Note, the sale of these assets are timed right at the moment when folks that are holding gold and silver are all taking a collective sigh of relief.  Now some of my readers and friends suggest that this too is the time that the USD collapses in sympathy with the implosion of the Euro fiat currency.  I don't know, perhaps that is correct.  Perhaps it implodes on the weight of its own debt or a chain reaction to the collapse of the Euro, since the Fed has extended so much to Europe in the form of USD swaps.  But needless to say, it is ugly, and that translates into a free fall in gold and silver despite the notion that they are a safe haven. 

    Now our friends at http://www.fofoa.blogspot.com/ suggest that they have seen this coming in the post - FREEGOLD IN THE PROPER PERSPECTIVE.  Essentially, they suggest (as I have suggested but not for this reason) that this will be the moment when a rift takes place between the trading or paper value of gold and the value of the real hard stuff.  In other words, the value of gold for GLD may be $500 an ounce but if you asked your local coin shop or friend what they'd sell you a 1 oz American Eagle coin for, they would respond with something like "$3,500 for you buddy".  This amorphous pricing is hard for me to get my head around since I've been known to buy and sell physical gold and silver and attempt to play movements in these markets.  If this perspective is correct you almost need to retain a portion that never gets sold to protect you and your family.  In these collapse situations, this will be your only asset that has any value, unless of course you have some oil storage facilities on your homestead.   

    RIDING THE BRONCO
    I think the take away is that there will be extreme volatility as we near and cross the event horizon of the Euro fiat collapse.  Essentially as the collapse begins we'll endure a face ripping off acceleration in the price of gold and then a rapid drop as banks look to stop their bleeding.  As more worries surface about the health of institutions these gyrations will be repeated over and over.   

    I'm not sure if there is a "best" game plan for enduring this ride, but it is clear that in the aftermath of a Euro collapse and possibly a knock-on fall of the USD I'd rather have some gold than some worthless Euros or USDs in a bank account.


    Jul 19 12:17 AM | Link | Comment!
  • THE NOOSE IS TIGHTENING..... (by Goatmug)

     


     

    Moody's made the first assault on the beachhead just yesterday.  Shockingly, Standard and Poors reinforced the rear guard today reporting they put the USA sovereign debt on credit watch negative.

    Now here is the real kick in the pants;

    "The long-term rating may be lowered by one or more notches into the AA category in the next three months if SandP concludes Congress and President Barack Obama’s administration haven’t achieved a credible solution to the rising U.S. government debt burden and aren’t likely to achieve one in the foreseeable future, according to the statement. "

    Note that it isn't like the Moody's warning that the debt ceiling negotiations were a reason for the potential downgrade, this explicitly states that the USA is on credit watch for its out of control spending.  In other words, EVEN Standard & Poors cannot be bought off anymore and just like several weeks ago with the Italian bonds, the rating agencies finally are stating the obvious.

    Congress and the administration were just given a warning here and they better pay attention.  There are significant ramifications for downgrades and the biggest one of course is that we'll be required to by higher interest on borrowing.  We already know that the Fed (we) lose billions each time bonds trade 1 bps (basis point) higher.  We simply cannot afford an increase in borrowing costs now and rising interest expense simply adds to the problem of meeting our future obligations.

    I'm increasingly repulsed by both political parties and  I only champion candidates that actually propose and support fiscal restraint and cutting EVERYTHING!  Note how I phrased that, I only care if they actually do what they say, not just say and not do.  Yes, that would include Rand Paul and Ron Paul who talk a good game and then suddenly can't get anything done.  I don't care if the program helps little old ladies, dogs, police, traders, bankers, beggars, or murderers, I want the programs and employment serving that program cut 10% tomorrow as an opening gesture.  I want Congress closed for half a year.  Finally, the department of Energy, Education, and Homeland Security need to be shuttered and all Federal Union contracts destroyed.  These should be a fine starting place to warm us up for discussions to move the retirement age for 40 year-olds and younger to 72 for Social Security.  Social Security tax caps need to disappear and benefits need to be means tested while Medicare and Medicaid outlays need to be reduced.  Finally, to cap off the blitzkrieg attack on government nanny-ness, waste, and fraud, the Patient Protection Act (Obama Care) should be thrown in the trash.

    I haven't forgotten about defense spending either and that should receive a flat 15% cut and all foreign aid to all countries should cease immediately.  It is a travesty to think that Americans pay foreign aid to China so they can steal from us and rip us off and then lend to us.  It is wrong that Pakistan takes billions from us and then supports the Taliban that are killing our troops.  Once the money flows to other nations are halted we'll quickly find out if they were really our friends or not.

    The rating agency actions are serious and our "representatives" in Congress and the guys in the administration better wake up.

    It won't be long before the bond vigilantes come around and we'll see just how much fire power and creativity Bernanke has left.  The bond market is way bigger than the Fed balance sheet.  The Fed may be able to manipulate equity prices but he can't handle drinking from the bond market's hydrant if everyone starts selling treasuries.  He won't be able to keep rates at zero forever in the face of that kind of onslaught.  You can hear them saying, "Get a rope".

     


    Jul 15 11:01 AM | Link | Comment!
Full index of posts »
Latest Followers
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.