Corresponding bear market

For stock and/gold oriented trader/investors, there is an article contrasting past performance of the two vehicles entitledPaperbugs Won’t Get It Until It’s Too Late. The author’s immediate view is as follows:

A brutal cyclical common equity bear market within this secular bear market for common stocks has already begun. Meanwhile, the parabolic phase in the uncommon Gold secular bull market has just begun with the latest thrust higher. Please don’t mistake the forest for the trees: Gold should be correcting now and common stocks are due for a dead cat bounce higher. But these shorter-term considerations are not where the big money is made for retail investors …

Improve the economy

Hapless Ben Bernanke, in an effort to save the unsaveable, continues to pour liquidity into the system.

Liquidity is the only thing that keeps the economy and the government from imploding.  It accomplishes nothing other than to “pretend and extend.” The economic debacle ahead cannot be avoided, only deferred. It provides those willing to understand more time to prepare. It also means most will be poorer in terms of purchasing power as a result.

The banking system is insolvent, headed for collapse. Bernanke cannot change this ending, only its timing. In the meantime, he destroys the savings and the standard of living of the middle class. His inflationary policies drive food costs up around the world. Many believe this pressure on food prices precipitated the riots in the poorer nations.

Banking system is headed for collapse

Warren Buffet committed $5 billion to Bank of America today. The stock opened up more than 20%.

Buffet’s commitment may be considered good news, especially for shareholders of Bank of America. Ultimately, it is probably bad news for all of us, including B of A.

In my opinion, it is merely another confirmation that our banking system is headed for collapse. It indicates that more Federal funds (your taxes) are headed for the banking system. Buffet would not have made this commitment without assurances from government that they would backstop him.

Working within the system

In their opinion, we have lost in the sense that there is no way out of our current situation:

To put it simply, America is nearing a checkmate scenario.  Like the final torrid maneuvers of a rigged chess match, we have been pressed, manipulated, and attacked into the last remaining corner of the “grand global chessboard” left to us; centralized control of all social and economic power into the hands of an unworthy elite.  If we continue playing the game by their rules, we will lose.  There is no doubt.  There have been many solutions presented to us in the past to combat this development, but nearly all of them function within the constraints of Federal politics.  Working within the system has earned us no quarter, and frankly, no results.  Our only recourse (and, frankly, the best recourse all along) is to STOP relying on the rules of their game, and to walk away from the chess board completely…

Market is ready for a long bear market

Bill Bonner at The Daily Reckoning wrote this before today’s $100+ drop in the price of gold. Interestingly, he also thought gold might go down, perhaps for some period. Is he discouraged? Hardly, he believes it would be crazy to divest of gold and expects one ounce of gold to eventually be equal to the Dow Jones at some point.

His guess is as good as mine or yours. Here are some other guesses:

We’re also guessing that…

…the weight of so much debt is depressing growth…and will soon depress stock prices too…

…that the economy is becoming zombified from too much government money…especially the military…

…that Mr. Market is ready for a long bear market anyhow; he’s tanned, rested, and ready to go to work

…that the US is following in Japan’s footsteps…towards a long period of on-again, off-again recession

…that the recession of ’08-’09 in the US never actually ended…

…and that stocks will go down over the next 5-10 years until they finally hit a real bottom.

But wait. Here comes the San Francisco Fed. Can you believe it? It agrees with us.

My opinion is worth what you pay for it. I believe gold is in a correction (FINALLY!!) and intend to buy more. Perhaps not right away. Regarding the points above, I believe in them even more strongly than I do the continued rise in Gold. You make your own decisions.

Describe the current economic strategy

The bloated, self-serving  political class can usefully be understood as parasites feeding off the private sector of the economy.

As the economy spirals toward collapse and the government toward bankruptcy, the necessity of spending cuts and downsizing of government should be obvious. However, the recent debt ceiling debacle indicates that the political class is not interested in saving the economy.

The term Kevorkian economics is used to describe the current economic strategy pursued by the political class. Like Kevorkian, the strategy involves managing death – the death of the US economy (and likely other economies).

Incessant hammering of free markets

George Bush did it; the Republican obstructionists in the Congress who were wary of approving another $2 trillion in debt did it; the Tea Party did it; Standard and Poor’s did it; the Japanese earthquake did it; the Japanese tsunami and nuclear accidents did it; the Middle East unrest did it; the European debt crisis did it; new technology like ATM machines did it. Obama has cited these culprits and many more — though never either himself or his advisors who took a weak recovery and turned it into a near recession.

You see, The One is not responsible for a thing. His efforts would have had us back on “easy street” had it not been for the above.

But it is worse than that. His incessant hammering of free markets, businessmen and “success” is creating a bit of John Galt in all producers:

The government must do somethin

On Thursday, the Dow was off about 500 points in the first hour, presumably based on fears of European bank and sovereign failures.

The talking heads on CNBC were beside themselves, rationalizing what was happening and what should be done — the Federal Reserve should initiate QE3, more fiscal stimulus should be used, etc. etc. All spoke of the need for government solutions and quick actions.

By 10:30 I could take no more of “the government must do something.” Governments cannot solve this problem. They caused it! Intervening will only make the problem worse.

Politicians like zombies

So, what’s the difference between an angry zombie and a person who is angry because he’s tired of supporting zombies?

In economic terms, a zombie is a parasite. He contributes less to the economy than he takes from it. He lives at the expense of others.

Almost any profession or career can be a nest for a zombie; an auto mechanic who rips off his customers, for example, is a zombie…at least in a sense. But most often, zombies are created, enabled, and supported by government. Government transfer payments create whole armies of zombies. Government bailouts turn whole industries into zombies. Government programs and

Remarkable group of economists

Who were these people?
They were like scientists trying to address a convention of witch doctors.
They gave up career and fame to stick with the truth and say what had to be said.
… it is very dangerous for an economist to seek fame and fortune and to work closely with political establishments, simply because, in [Hayek's] experience, the most important trait of a good economist is the courage to say the unpopular thing. If you value your position and privileges more than truth, you will say what people want to hear rather than what needs to be said.
They chose freedom even when it was at the expense of their own bank accounts and even though their choice brought professional decline and risked failure in the eyes of their colleagues.
… the man who is willing to do what is right regardless of the circumstances.
It takes more than technical knowledge to be a good economist. It takes moral courage, and that is in even shorter supply than economic logic.
These were a remarkable group of economists that valued truth over fortune. In our materialistic, relativistic world, there are few like them today in any field. Too many economists have become “rent-an-economist,” willing to say or do anything for advancement and income. Other professions, including the physical sciences,

To help the stock market

Most people are convinced that QE3 (or its equivalent) will soon be with us. And most of these also believe that it will be good for the stock market.

TF Market Advisors cautions that the assumption that markets will respond may be incorrect:

Maybe all the Fed members can read Winnie the Pooh and the Money Pot prior to the September meeting.  It is a simple story of how greed, and gluttony, and doing what feels good now, can have some very negative long term consequences.  That story ends well, but maybe the path of printing money won’t.  Another round of QE3 may not do much to help the stock market this time since so many of the factors are different, so much has been priced in, and there were many other positives that helped stocks last year that may not reappear. 

Euro-scale unemployment

VodkaPundit has produced one of the best analyses of our current economic and political condition.

Reagan’s approach and results to an economic crisis were described in the article:

After choking off inflation, cutting taxes, and resisting any call for grand, new spending programs, President Reagan oversaw an amazing expansion of the U.S. economy. In just six years, the U.S. — quite cavalierly — conjured up an economy the size of West Germany’s and added it to the one we already had. Building on that base, President Clinton oversaw an even greater expansion, fueled by the entrepreneur-driven high-tech field.

Greece is broke

Reader JJC provides some insight on Greece. The same pretensions are going on in other European countries and in the US. Greece is merely further along than others, although all are headed for the same fate. The days of “extend and pretend’ are nearing an end in Europe and in the US.

The Greeks have shown an unflagging ability to obscure and outright lie regarding their finances.

Rumor has it that Finland wanted the Parthenon as collateral before they would loan any more money to Greece.  The Greeks balked at that, understandably.

Now the rest of the EU is lining up trying to secure hard assets for their bailout money

More spending will correct matters

The debate over Keynesian economics rages on. The political class, buttressed by their “rented economists,”  argues that Keynesian intervention is necessary. When promised outcomes do not develop, it is claimed that the remedial dosages were too small. More spending will correct matters.

Increasingly, the efficacy of Keynesian Economics is doubted. Common sense, rather than sophisticated formulas and models, is all that is required to see through the false claims and reasoning. Mish provides his view of Keynesianism and “stagflation:”

Investors expect them to continue

The Federal Reserve is in over its head. It is trying to solve a fiscal policy created by feckless, cowardly politicians. Monetary policy cannot solve this problem. For a while it was able to cover it up somewhat. That point has been passed.

Today, the Fed will make another announcement. There is little question that they will try to juice markets and the economy in some form or another. For them to announce that they are done would collapse markets and eventually the fiscal policies that cannot be supported without the continuous printing of money. That is why markets and investors expect them to continue.

The political economy would be hopelessly

Bernanke employs an elementary tactic in rhetorical obfuscation; i.e., presenting a problem without explaining the cause but going immediately into the prescription to be taken to counter its deleterious effects.

This tactic is helpful because it exonerates the FED from being implicated in the cause and, therefore, clears the way for the chairman of the FED to prescribe without excuses.

Picture if you will a doctor, Ben, who has been called into a case. The patient is suffering from severe bodily malfunctioning. Without disclosing that he was the doctor who has been treating the patient with ever increasing doses of heroin, Ben prescribes an even larger dose of heroin. Thus, as the patient’s condition continues to deteriorate, Ben explains that once the dosage of heroin is large enough, the patient would recover.

The stock market’s first reaction

The charade that is represented by world governments is becoming more strained by the day. Ben Bernanke’s decision to do nothing was ridiculous. Not in the sense that he can affect outcomes in any way shape or form, but in the sense that he can prolong the agony that the economy must endure. 

The stock market’s first reaction to today’s non-event was to sell off hard. But after the word got around that this was just a delay (and a short one at that)stocks caught a bid. Basically, the plan by Bernanke to leak his intentions worked.

Capital without labor

Any good economist will tell you that as complementary factors of production, labor and capital are not only indispensable but hugely dependent upon each other as well.

Capital without labor means machines with no operators, or financial resources without the manpower to invest in. Labor without capital looks like Haiti or North Korea: plenty of people working but doing it with sticks instead of bulldozers, or starting a small enterprise with pocket change instead of a bank loan.

There may be no place in the world where there’s a shortage of labor but every inch of the planet is short of capital. There is no worker who couldn’t become more productive and better himself and society in the process if he had a more powerful labor-saving machine or a little more venture

capital behind him. Capital can refer to either the tools of production or the funds that finance them. It ought to be abundantly clear that the vast improvement in standards of living over the past century is not explained by physical labor (we actually do less of that), but rather to the application of capital.

This is not class warfare. I’m not “taking sides” between labor and capital. I don’t see them as natural antagonists in spite of some people’s attempts to make them so. Don’t think of capital as something possessed and deployed only by bankers, the college-educated, the rich, or the elite. We workers of all income levels are “capital-ists” too—every time we save and invest, buy a share of stock, fix a machine, or start a business.

And yet, we have a “Labor Day” in America but not a “Capital Day.”

Like most Americans, I’ve traditionally celebrated labor on Labor Day weekend—not organized labor or compulsory labor unions, mind you, but the noble act of physical labor to produce the things we want and need. Nothing at all wrong about that!

But this year on Labor Day weekend, I’ll also be thinking about the remarkable achievements of inventors of labor-saving devices, the risk-taking venture capitalists who put their own money (not your tax money) on the line and the fact that nobody in America has to dig a ditch with a spoon or cut his lawn with a knife. Labor Day and Capital Day—I don’t know why we should have just one and not the other.

Happy Capital Day, America!

Fed monetary stimulus is now useless

Belief that government intervention, as advocated by Keynesian economists, can improve an economy should have ended in the early 1980s. Yet it has not because government power and control is dependent upon perpetuating the myth that government needs to manage the economy.

Continuing intervention eventually cripples an economy by distorting price signals and creating the  mis-allocation and waste of resources. Additionally, the general loss of flexibility to businesses reduces their willingness to respond to opportunities. Slowly, capital is destroyed via mal-investment. Entrepreneurs faced with increasing uncertainty are unable to find projects with expected returns that compensate for risk.  They refuse to deploy capital, hire workers or expand their businesses. At some point, the system shuts down.

Controlling the economy

The debate over Keynesian economics rages on. The political class, buttressed by their “rented economists,”  argues that Keynesian intervention is necessary. When promised outcomes do not develop, it is claimed that the remedial dosages were too small. More spending will correct matters.

Increasingly, the efficacy of Keynesian Economics is doubted. Common sense, rather than sophisticated formulas and models, is all that is required to see through the false claims and reasoning. Mish provides his view of Keynesianism and “stagflation:”

Exposure to traditional stocks

Most people are convinced that QE3 (or its equivalent) will soon be with us. And most of these also believe that it will be good for the stock market.

TF Market Advisors cautions that the assumption that markets will respond may be incorrect:

Maybe all the Fed members can read Winnie the Pooh and the Money Pot prior to the September meeting.  It is a simple story of how greed, and gluttony, and doing what feels good now, can have some very negative long term consequences.  That story ends well, but maybe the path of printing money won’t.  Another round of QE3 may not do much to help the stock market this time since so many of the factors are different, so much has been priced in, and there were many other positives that helped stocks last year that may not reappear. 

Perhaps TF Market Advisors is correct. My strong belief is that they are correct. Hence I have virtually no exposure to traditional stocks.

After choking off inflation

VodkaPundit has produced one of the best analyses of our current economic and political condition.

Reagan’s approach and results to an economic crisis were described in the article:

After choking off inflation, cutting taxes, and resisting any call for grand, new spending programs, President Reagan oversaw an amazing expansion of the U.S. economy. In just six years, the U.S. — quite cavalierly — conjured up an economy the size of West Germany’s and added it to the one we already had. Building on that base, President Clinton oversaw an even greater expansion, fueled by the entrepreneur-driven high-tech field.

Greek bank assets as collateral

Reader JJC provides some insight on Greece. The same pretensions are going on in other European countries and in the US. Greece is merely further along than others, although all are headed for the same fate. The days of “extend and pretend’ are nearing an end in Europe and in the US.

The Greeks have shown an unflagging ability to obscure and outright lie regarding their finances.

Rumor has it that Finland wanted the Parthenon as collateral before they would loan any more money to Greece.  The Greeks balked at that, understandably.

Now the rest of the EU is lining up trying to secure hard assets for their bailout money earmarked for Greece.  The entire agreement is at risk of being delayed indefinitely or blowing up.  Yet, who can blame them?  Loaning money to Greece is the same as just giving it to them, you’ll never get your money back.   so now, in an effort to please the hard asset crowd, German newspaper Handelsblatt reported today that EU leaders were considering bank shares as collateral.

Oh boy.  Greek bank assets as collateral?  What’s that worth?  Probably as much as the change lost inside the seat cushion of my couch.  OK, then, what’s next?  Cattle, sheep and other livestock?  How about olives and feta cheese?  A few goats?  How about a national garage sale?

Are any of these dolts listening to themselves?

Greece is broke.  Bankrupt.  Insolvent.

What’s worse is that there is really no means of that nation growing out of its debt or being able to service its debt load in a short, medium or long term fashion.

File national bankruptcy, default on your debt, get out of the Euro, and go back to being a beautiful and pleasant, but sleepy southern backwater.

The gold price plummeted

In the span of just a few trading days last week, the gold price plummeted from a high of $1,910 an ounce last Monday to a low of $1,712 three days later. The folks who never owned gold in the first place, and who have always held the precious metal in contempt, rushed to declare the “end of the gold bubble.” Many of the folks who did own gold wondered if the naysayers might be right this time.

But a few of the folks who own gold, especially those who have owned it for a while, recognized the selloff as the price of their success. In other words, the selloff was only painful if you were one of those investors who actually owned gold. And if you actually owned gold, you probably purchased it for less than $1,712 an ounce, maybe much, much less.

A $200 selloff in three days is not nothing; but it may not be that much worse than a jellyfish sting in Cannes. For perspective, $1,712 would have been an all-time record high for gold as recently as August 5! And even after the recent selloff, the gold price is up 10% over the last 30 days and 45% over the last 12 months. The S&P 500 Index, by comparison is DOWN 6% during the last 30 days and up only 15% during the last 12 months.

Confidence among world leaders has noticeably deteriorated

There was no joy in Mudvilc Jackson Hole this year. The central bankers of the world have mucked things up so badly that not even their fancy words and Wizard of Oz pronouncements were enough to penetrate the gloom.

The US economy and Ben Bernanke’s optimism have deteriorated from the prior year. Fed policies have not worked, and there is increasing recognition they are the wrong tool for the job. Economic results, body language and confidence among world leaders has noticeably deteriorated.

Econophile provides an analysis of the Jackson Hole dog and pony show. He describes the outcome:

We are witnessing the failure of contemporary economics on a grand scale. These policies are being played out on the worldwide stage much to the same result. Europe is experiencing a culmination of years of failed policies.

What concerns me greatly is the next step. It doesn’t look likely that the Fed will embrace Austrian theory economics.

Instead they will try the same things again. ZIRP has been continued to 2013. Perhaps the Fed will reduce interest on excess reserves, or not pay interest at all, in order to encourage banks to lend. Perhaps it will pursue “Operation New Twist” and roll its portfolio over into even longer term maturities. Perhaps it will reduce bank reserve requirements temporarily (assuming it could get by Dodd-Frank and Basel III).

Then there is QE3, more monetary stimulus through direct injections of cash into the financial markets.

Despite Mr. Bernanke’s promise to the late Milton Friedman, it (Depression) is happening again. Bernanke is out of tools, resources and apparently hope. That he was using the wrong policies is the cause of his dispirit, although he still does not recognize that. For Ben, the situation and its timing could not be worse:

What this means is that during the presidential election cycle, politically sensitive economic indicators such as unemployment will remain negative. This will result in a lot of pressure on the Fed and Dr. Bernanke to “do something.” Like all former Fed Chairmen, it will be hard for Dr. Bernanke to resist these calls from politicians. He will earn his moniker as “Helicopter Ben” and unleash more quantitative easing, a dangerous and regressive policy. Like most drugs it becomes less effective over time. It will further destroy real capital and delay recovery.

I concur completely with the above paragraph, although would add one more important consideration to the list. Even if economic conditions were improving, this paragraph would still be true. The US will be unable to fund its deficits without the Fed printing money. Until spending is reduced, QE is with us regardless of the state of the economy.

The market has finally stopped being moronic

1)   Greece is bankrupt. It has been for years. The market has finally stopped being moronic and figure out the obvious (so much for the “efficient” hypothesis).

2)   Greece WILL default. This WILL crush German and French banks.

3)   The EU in its current form (as well as the Euro) are DONE.

4)   The US banking system is similarly fragile and on the verge of collapse.

5)   The US economy is in a DE-pression and rolling over in a big way AGAIN. All the economic data is being massaged to look better than it is. Look around you, does the economy look OK to you?

6)   The US Government is broke. Obama’s jobs plans is absurd. Where’s the money going to come from?

7)   Bank of America (as well as the other TBTFs) is insolvent. The only reason they’re still in business is rampant fraud, lies, and theft. What’s happening in Greece is coming to them soon.

8)   The Federal Reserve has lost control of the markets. QE 3, IF it comes, will accomplish nothing. Bernanke will be stepping down within 18 months and possibly facing legal battles.

Everything above, except number 8, is likely. I take exception to the “IF” in the last item. It will accomplish nothing, but it will happen. Without QE3 (either overt or covert), the US government cannot fund its needs. Markets will not fund $1.5 Trillion deficits so the Fed will directly or indirectly purchase government securities so that Social Security and other government payments don’t stop.