A Reflection on Power

Yeah, on the politicians being allowed to inside trade. That law was signed on April 2 (as I recall) of this year but does not go into effect until September 1st, next month. Got to have time to unwind all those insider deals, I guess. Most of the big ones are not in securities nowadays anyway, too easy to track, but in real estate and arranged as payoffs. That is how the Senate Majority leader Harry Reid made his bundle. Or the Obamas getting their Kenwood District house with the "help" of Tony Rezko and his wife. The Clinton magic $100,000 cattle future payoff. People do not "seek" power unless they want power. Power is the ability to have your own way at the margin. More power means more having your own way. Most people want money. Most power seekers want money. This has been going on forever. Even George Washington went after real estate in the Ohio and Shenandoah river valleys (many hundreds if not thousands of square miles) during and after the secession war with the British Empire using his "political connections" extensively. Power is getting what you want. People want money. "Good Government" is an oxymoron. People who want power but not personal wealth are much worse than the personal wealth seeking kind. Antoine Saint-Just, Hitler, Stalin, Richard Speck, Charley Manson, the Batman shooter. There are millions and millions of them. A person trying to get rich is harmless compared to those who are willing, no, eager, to kill to further their ends. Killing at will is the real stuff of power.

2012: A little bit about gold

I was going to talk about gold as a hedge and hedges in general. Forgot to. Gold is money. If government scrip declines in value a unit of scrip will buy less gold than it would have before the decline. Gold will probably continue being an effective hedge against loss of the value of the dollar. The stock market, to an extent, and of course depending on stock, sector, etc., also is a hedge against the dollar. The Federal Reserve does QE, money volume increases, and the value of the dollar drops through dilution (just like a stock). The stock market goes up because the new money chases the market up, hedging the loss in the dollar's value. That is why Wall Street loves QE. Remember that the dollar today is worth what sixty cents was worth in 2000. If you look at the S&P 500 monthly chart from 1995 to present you will see two highs very close to 1500 (1498 in Jan. 2000 then 1525 in July 2007). In July 2012 the monthly was 1418. A cyclic view is that we can expect a high 7.5 years after the July 2007 high (as 7.5 years is the time between Jan. 2000 and July 2007). That would be Jan. 2014 and followed by a monthly low about 800 after two and a half years (with no TARP, QE, trillion dollar treasury raid, etc.) to six months (with full bore intervention). Another way to look at this is that as compared to the January 2000 dollar our current dollar is worth 60 cents of Jan 2000 money, then the current S&P 500 is not 1418.16 but instead 851 in Jan 2000 dollars. So what we have, in constant dollars, is a succession of lower highs and lower lows dating back twelve and a half years. The only asset that worked, in constant dollars, over this entire time period, has been gold. If enough people decide that the modern fiscal and monetary system is crooked then the good old modern monetary and fiscal world is history. This will cause really bad stuff like vaporizing every last bank deposit in the world, all the derivatives, all the underlying, the whole thing. The modern world will be stopped in two minutes after all bank accounts become simultaneously valueless. Probably the only institutions to make the transition to the New World will be military. This is why the "establishment" is so hostile to gold. So, hey, I don't know what the price of gold will be. The dollar has strengthened sizeably against various currencies, the Chinese and Indians have stopped importing gold for personal use, new gold production is coming on line fast, and the changes are not well reflected in the various indexes. You just gotta take any authoritative didactic proclamation with a big pinch of salt. Heavy support for gold about $1500 per ounce. If the Fed lays off the QE gold should trend very slowly upward. QE would cause a return to the trend line of Jan 2009 - July 2011. Notice that the gold price line during this period exactly inverted the declining dollar. Gold was holding constant value, that is. The dollar was losing value. One requirement of good money is that it be a reliable store of value. During this period (Jan '09 - Jul '11) gold was a reliable store of value while the dollar was not. Marc Faber likes gold. So does George Soros although he won't say so. As it becomes time to escape the Euro dollars are bought. This is happening now at an increasing rate. If faith is lost in the dollar then really all that is left is gold. The USA is actually in worse financial situation than is the Euro zone, but the USD will still buy you oil, if at a ridiculous price. By the way, the only reason OPEC still accepts dollars for oil purchases is that Saudi, UAE, Qatar, Sudan etc. won't last a minute without American military cover. That means, quid pro quo, that either the USA is willing and able to go to war with Iran and defeat Iran utterly, or a new Persian Empire controls the oil countries and the USA won't be able to buy fuel or sell government bonds. Americans would die in large numbers. Elections would be cancelled for the "duration of the emergency". The "emergency" would end up lasting a long time, longer than you or I have to live. No way to make better estimates of the human costs than the 14th Century Black Death, the Seventeenth Century Thirty Years War, or the American Indian's Sixteenth Century European plagues (smallpox, bubonic plague, typhus, typhoid, cholera). Could also be easier, could also be harder.

"The Reality Facing Us": August 5, 2012

As I have pointed out before, the ACTUAL GDP has been declining steadily since last half of the year 2000, with only one quarter of growth (in 2004) since this "contraction" started. In real GDP there has been a GDP decline of about 30% since the year 2000. The USA population has increased more than 10% in this time, so GDP per capita has decreased to about 63% of what it was in the year 2000. If you use a reasonable figure of 40 million "immigrants" during this time the GDP per capita is 54% of what is was in the year 2000. So if you are wondering why you are suddenly so much poorer, well, this is the reason. And, unfortunately, the really can be no realistic expectation of the situation improving. I expect GDP per capita to continue to decline at the present rate until conditions change and the rate of decline increases, probably markedly. And certainly the mainstream media and the political class will be of no help. The reason I write is to suggest the attached link, which leads to a Power Point like slide show that neatly describes the situation we are all caught up in, which offers a real, but not easy, way out of this ugliness. The first step is to get past the "denial" stage of grief, then the "anger", to "resignation". We must face reality with courage and without illusion and delusion. http://www.businessinsider.com/jon

"More About Spain"

Like I said some weeks back Spain needs about 400,000,000,000 Euros to recap the banks. A loan of 100,000,000,000 Euros has been promised. Three times that much is still needed, and not as a loan - unless it is a loan "in name only" - because Spain couldn't pay back that much money at 5% interest in a million years. Maybe the ECB (run by Mario Draghi, by the way; Mario Monti is prime minister of Italy) will just buy Spanish bonds and just never redeem them, just vaporize, incinerate, or put them in a drawer and forget them forever, etc. Spain needs cash to pay off loans, not loans to pay off loans. The ECB will intervene in Spanish bond markets for sure, now, with massive buys that will just murder the shorts, like driving the interest rates of Spanish bonds down from 7.5% to less than five percent long enough, a day or so, to kill the shorts, and then say they will do it again whenever they feel peckish. The message is "you might want to be careful, boys and girls". The Germans are listening now to European "reason" because Greece owes Germany Target2 funds of 692,000,000,000 Euro (which are part of German bank "assets"). As well Germany holds Greek, Spanish, and Italian debt in unknown amounts, probably over 5 trillion Euros, maybe two or three times that amount. Greece leaves the EU, Germany is out 692 Billion Euro in Target2 funds, plus whatever the Greek government owes, plus what all Greek private citizens owe. Call it a round Trillion Euro. A loss of this size would make every German bank, insurance company, and pension fund bankrupt. Throw in Spain and the loss would be something like 7 Trillion Euros. Add Italy and it would be maybe 17 Trillion Euros. The EU would explode into space.

"What's In Their Coffee on Wall Street?"

On 7/13/12, The Evansville Observer wrote: > Bear Trader > On the Squak on the Street this morn prior to the opening, Jim Cramer > commented on the announcement by JPMOrgan that their loss was 4.4 billion up > from two, that when one considered that the final net PLUS the losses was a > huge number if applied by the multiple, then the valuation of the stock was > much higher....huh? thus he was positive on the stock for the future. > Lets all not discount our losses and apply the multiple and then be wildly > positive hUH? what is the new math..or is it new meth? > > Bear Trader Answers: As I said earlier Wall Street is totally hot to Buy, Buy, Buy. I didn't use those words, exactly, as I recall. I recall saying they acted like manic bipolars off their meds. The problem is that the world central banks including the Federal Reserve have printed so much money since 2008 ($15 Trillion in 2008 and 2009, as much as the US GDP) that Wall Street is awash with cash, drowning in it, and the money is burning holes in every pocket in the financial world. Even JPMorgan-Chase is throwing money around like a coke head. Dimon even says their $5,000,000,000 trading loss don't mean nothing. Did you know that Greenberg of Bear Stearns bragged about his coke use to an underling once, and showed him his stash? About 60 or 100 grams, it appears, costing several thousand dollars. Who do you think bought, buys, all that coke up in Harlem? It is not local residents as they don't have enough money. It is easy to snort $1000 a day worth (assuming you have the cash). Too bad I can't borrow a few trillion at 0.5% and get 0.6% from soon maturing Treasuries. I would get, for each trillion dollars borrowed, ten basis points per year, or one billion dollars per year. Not bad for no work and no risk, eh? Just call

The Short Squeeze---Point, Counterpoint

The Question: On 7/5/12, The Evansville Observer wrote: > Bear Trader > Please review how the commodities spiked up prior to the 4th of July. Oil > spikes up 8 dollars in one day, coffee spikes from 1.65 to 1.80. > Question: This seems to defy the fundamentals. Was this just the program > guys trying to spook the shorts and force them to cover? What is your take > on it. > China is slowing....this should slow demand for oil...coffee is > aplenty....why why why The Answer: Date: Sunday, July 8, 2012, 2:53 AM I don't know, Observer. A short squeeze is as good an explanation as any. I think it was the HFT guys. Some sort of algorithmic interaction amongst the the machines, a bit like the Flash Crash, maybe. The machines can't dance together, they are just like assembly line robots, skilled humans must intervene when they start bumping each other. Maybe the algos were programed to anticipate a short squeeze last Tuesday. Robots are very damned dangerous to be around.

"Spain, Spain, Spain"

For Spain to be really rescued would be tough. What Spain wants is the same thing that Greece wants, that is, all the free money it desires. Actually "rescuing" Spain requires putting adults in charge of government spending at all levels, that is, cutting politics and voters totally out of the fiscal loop. Spain has shown itself incapable of self government. Spain's banks are deeply insolvent. They have to be recapitalized. I don't mean that they need loans because the last thing they need is to be deeper in debt They need cash (and right now), not loans, and about 400 Billion Euros worth. Like the Spanish government the Spanish banks have shown themselves feckless and completely irresponsible, not capable of acting like bankers, who make prudent loans, but instead like drunken sailors or the guys who caused the American S&L debacle in the late '80s and the 2008 crash. You would be amazed to see the garbage Spanish banks wrote loans on. Spain won't accept that German bankers should have line item veto power over the budgets of every level of government or that German bankers be put in charge of each and every Spanish bank. Germany doesn't want to give Spain 400 Billion Euros just to watch them piss it away and come back for more. The Question: On 6/8/12, The Observer wrote: > Bear Trader > The press the past three days has had the two parties blaming each other in > advance for the coming collapse--- > Can Germany rescue Spain? or just with smoke and eurobond games... > I see a long slow hot summer and decline into the election. What is your > forecast? >