Sunday, August 21, 2011

Israel and the Palestinians

To understand what is going on with Israel and the Palestinians, let's look at a rather peculiar scenario with the US and Mexico.  What would happen if a radical nationalistic religious sect were to take over Mexico? Let's assume that they hate the US for the War of 1846 where we "stole" California and Texas from them.

Their demands initially are that we give them back the entire southwestern US, including California. They call it the occupied Aztlán territory. As time goes on, their demands grow greater. They say that since Cortez claimed all of the mainland, Mexico must extend over all of North America. They call us the hated occupiers and say we are related to Satan -- not even human.

Execution-style killings of Americans begin to occur worldwide "in solidarity with the oppressed Mexicans". Suicide bombs go off in American cities, sometimes killing hundreds. Mexico launches thousands of randomly-directed missiles a year into San Diego, Los Angeles, Tucson, El Paso, and Brownsville.

In order to pacify the Mexicans, and since their economy is so bad they cannot feed their people, we supply them with billions of dollars of food and building materials every year.

This goes on for years, decades even. The world community supports the Mexicans, since they have always hated and envied Americans.

The US cuts the aid sent to the Mexicans, and then stops flotillas of ships claiming to be on humanitarian missions carrying food, but finds vast stores of missiles on board. The world says we are trying to starve the Mexicans. We go back to supplying their food.

The Mexican fighters have their bases in residential areas, so whenever we attack a missile base or a headquarters, the Mexicans show all the dead women and children. We attack their armored vehicles, and other countries complain that we have killed their humanitarian aid workers and peacekeepers. Over time, world opinion comes around more and more to the full radicalism of the Mexican position.

Finally, countries friendly to Mexico begin the development of nuclear missiles, and call for the destruction of the US.

So what would you do if you were the US?  And what would you do if you were Israel?

I love this photo.  Dig the guys with the shades.

Government Debt and You

Here is a good explanation of the whole mess:


Quote for the Day -- On Poverty


Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.

This is known as “bad luck.”

-- Robert Heinlein, 1907-1988


Saturday, August 20, 2011

Global Warming is a Con

The release of the “ClimateGate” emails almost 2 years ago showed conclusively that the idea of Global Warming is managed and propagated by a group of about 30 climate scientists spread over several countries. They call themselves “The Team”. They have defined an orthodox body of belief that if questioned is defended vigorously, and they control the publication of climate-related scientific papers through the peer review process, using the threat of blacklisting to pressure publications who accept skeptical articles.

The science itself is poor at best, and actually is fraudulent in many areas, being based predominantly on computer models that have been shown to be poor predictors. Actual temperature measurements and the analysis of them has been shown to be exceptionally flawed, from tree-ring studies based on only one tree (used to create Al Gore’s Hockey Stick chart), to fraudulent fiddling with trendless raw thermometer data to artificially produce an apparent severe global warming trend, to the siting of temperature measuring stations near hot asphalt, hot air conditioner exhaust, building roofs etc – and the removal of rural stations in preference to stations in cities and on airport tarmacs.

Multiple motivations exist:
  • The billions and billions of dollars in government funding for climate research, regulation, and green energy
  • The prestige among peers and the world in general
  • The desire to bring down the mighty and have power over the powerful
  • The desire to create a new order ruled not by businessmen or politicians, but by "enlightened scientists"
  • The satisfaction that comes from believing you are fighting evil and saving the world
  • The belief that the modern technological world is unnatural, and therefore bad.
  • The belief that the problem of Global Warming can only be solved by a World Government, and is thus the perfect vehicle for creating one.
  • The hatred of capitalism because it creates rich people
  • The hatred of consumerism because it uses resources
  • The hatred of individual freedom because individuals make bad choices for the planet
  • The desire to control people and make them believe as you believe – by force of law
  • The hatred of Americans for consuming resources while the world goes hungry
The idea that the whole planet is being destroyed by capitalist businessmen, and that the world can only be saved by creating a world government with wide-reaching powers to make everyone equal, while going back to an Eden-like existence, is an exceptionally strong meme with certain scientists, NGO’s, politicians, and grass-roots activists. They have long wanted to create the New Environmental Man, who curiously enough is just about identical to the old New Communist Man.

Money plays a role with the NGOs too. Most people don’t realize that Greenpeace has invested its donations heavily in European green energy companies. Greenpeace lobbies for green energy, and then profits when the governments subsidize it. Their profits are tens of millions of dollars now, but the Greenpeace coffers will fill with billions of dollars in the next 10 years as nuclear and coal plants are torn down, and green energy costing ten to twenty times more than fossil fuel is mandated.

Follow the money. Literally 100’s of billions worldwide are being spent on "climate research" and green energy. The skeptics are pretty much all self-funded. No wonder there is a “consensus” for global warming.

Big Green is set to make Big Oil look like pikers. While Big Oil had influence in government, Big Green will essentially run the government. In the future, all politicians will have to be climate believers.

Gold and Stocks

I sold most of my position in UGL late Thursday. (UGL is a 2x leveraged long gold ETF.) The price of gold had climbed too high not to take profit (1823 when I sold, see chart on right from Kitco). But since that time, gold has gone up even more (to 1881) – but then back down some (to just above 1840).

I also sold a position in FAZ (an ETF that tracks 3x the inverse of financial industry stocks) that I had entered on Tuesday, with a profit of 14 percent in two days. I had made 36 percent on a previous stake in FAZ entered during the first week of August and sold the next week. I may go in and out of FAZ with small portions of my accounts over the next few weeks depending on conditions. It has provided me with some rather extreme profits recently.

 The performance of FAZ over the last two weeks (click for larger).
I bought at 57.20 the previous week (not shown), sold at 78.00 on the 9th,  then bought again 57.93 on 16th, and sold at 66.31 on 18th.  I got a little lucky with the S&P downgrade on the first one, but hey, it was pretty obvious things were getting bad, true?

There is definitely a concern that gold could go down significantly, along with other commodities if Europe and China continue to decline, leaving the dollar stronger than other currencies. Probably a good play would be to short the Euro, and go long gold, but I am leery of Forex since it is all too politically controlled – and therefore unpredictable.

I do believe that the entire world economic situation is trending toward the inevitable outcome of extreme Keynesian intervention: stagflation. Based on that, a long term hard metal position could help maintain some value over the next few years. A 2x gold instrument position could actually build value in that situation. Probably not a bad idea to keep 20% of your investment in gold, but you may want to wait for a pull-back to buy.

Dow Jones Industrial Average (Five Years)

There are hints today that European banks are facing some liquidity “abnormalities”. The Swiss National Bank received $200M from the Federal Reserve special “swap line” for foreign central banks late this week, which they had not done since the swap lines were reopened in May2010. Earlier this week an unidentified bank in Europe borrowed $500M short term (one week) from the European Central Bank. See: Some European Banks Face Short-Term Funding Stress.

Remember that cascading liquidity issues were what caused the large number of bank and investment firm failures in the 2008 crisis. This was stopped (or slowed down at least) back then by the unprecedented action of the Federal Reserve to reduce rates and inject hundreds of billions of created dollars into the banking system. But now, rates are already zero, and any further quantitative easing would drive even more inflation – or stagflation actually.  Bernanke is stuck between a rock and a hard place, with few tools left in his bag.

I am mostly in cash and am willing to sit there for awhile. I may miss a big rally, but the risk is too high to be in stocks AT ALL right now. I like the following quotes from an article today on CNBC What Traders Are Saying: Uncertainty Stalks London:

A trader who identified himself only as Graham said between sips of beer in a Canary Wharf pub that the prevailing attitude in his workplace is this:

“The best bet right now is to do nothing. Every time you put risk on, you lose money. Every time you take risk off you lose money. You’re better off going away on a nice long holiday and hoping the fuss has died down by the time you come back. You’re also serving your clients better by doing nothing—although they won’t see it like that, and neither will the bank, and it’s not exactly what you get out of bed and go to work for.”

Those sentiments were echoed by other traders who shared their feelings with, including one who suggested he might not re-enter the market this year at all.

“I am biding my time," he said. "I won’t re-enter the market before January or February—maybe March. I don’t have the heart for it, with markets rising and falling 500 basis points at a time. I am superstitious, and after a loss, I need a gain to be double the size of that loss, to maintain mental equilibrium.

“I don’t think there’s any more bad news coming—like the S&P downgrade for example—but I think the bad news we have already had needs time to crystalize. I think things will start to settle down in September or October ... At the moment, I’m sitting with my hands under my thighs [to prevent himself from making trades].

“July and August are always quiet months, with European countries like Italy on holiday for a whole month," he said. "I think markets would be going down anyway, but the lack of liquidity available is exaggerating the downward impact of bad news.”

Other traders told of their fears over what the future would bring, including the threat of a US recession, slowing demand from China or another sovereign debt crisis in Europe.

“The second half of the year is going to be awful. I’m actually very positive in general, and never really thought about confidence, but I don’t want to go out and buy anything, because I’m worried about my job,” Siamek, a trader at a large investment bank, explained.

“The way you act is based on how clear the future is to you," he continued. "At the moment, there are too many uncertainties that you don’t really have the confidence to do anything about it.

Monday, August 8, 2011

S&P May Downgrade US Debt Again in November or December

CNBC is reporting that Bank of America Merrill Lynch held an emergency Sunday night conference call for clients.  Ethan Harris, North American economist for the firm stated, "We doubt the newly appointed bipartisan commission will come up with a credible long-term deficit reduction plan. Hence by November or December we would not be surprised to see S&P downgrade the debt again from AA-plus to AA."

Some other snippets from the article:
Harris said that the U.S. should have avoided the downgrade in the first place by meeting S&P's demands of a $4 trillion deficit cut and a "demonstrating a sensible budget process." What they got instead was a "deficit cut of $2.1 trillion and a budget process that's been extremely chaotic," said Harris.

The 45-minute call was moderated by Michael Hartnett, chief equity strategist for the firm. Along with Hartnett and Harris, six other top strategists from various fields were on the call. Hartnett made references a couple times to how many clients from Asia were listening in on the call. That's probably with good reason as China owns $1.2 trillion in U.S. debt.

"If a disorderly Treasury market leads to the Fed embarking on QE3, repercussions for the dollar will be catastrophic," said David Woo, head of global rates and currencies research, on the call. "Investors will be quick to conclude that U.S. monetary policy has been subjugated by fiscal policy and the Fed's independence would be placed seriously into question."

More at CNBC

I find it interesting that if Obama would have just caved to the Tea Party Republicans, S&P would not have issued a downgrade.

Note that the Federal Reserve will meet on Tuesday 9 August 2011.

Jim Rogers Doesn't See How the United States Can Ever Pay Off Its Debts

From CNBC, Sunday night:
The U.S. doesn't deserve an AA-plus credit rating, much less triple-A, commodity bull and noted investor Jim Rogers told CNBC on Monday.

Rogers said the country was unlikely to be able to pay off its debt and Standard and Poor's rating cut had come too late and should have happened long ago.

"It seems to me it's physically, humanly impossible for the U.S. to ever pay off its debt," Rogers said. "They can roll it over and continue to play the charade, but the U.S. is bankrupt."

Rogers’ comments came during a CNBC interview with the head of sovereign ratings at Standard and Poor's, David Beers.



ECB "Signals" It Will Buy Italian and Spanish Debt

Since the CNN and Fox and CNBC and all the major network are ignoring this, I will tell you.  This is from Reuters.  Note that the ECB doesn't actually com right out and say they will buy Italian and Spanish debt.

ECB says will "actively implement" bond-buying
By Paul Carrel
FRANKFURT | Sun Aug 7, 2011 5:53pm EDT
“FRANKFURT (Reuters) - The European Central Bank said on Sunday it would "actively implement" its controversial bond-buying programme to fight the euro zone's debt crisis, signaling it will buy Spanish and Italian government bonds to halt financial market contagion.

After a rare Sunday night conference call, the ECB welcomed announcements by Italy and Spain of new deficit cutting measures and economic reforms as well as a Franco-German pledge that the euro zone's rescue fund will take responsibility for bond-buying once it is operational, probably in October.

"It is on the basis of the above assessments that the ECB will actively implement its Securities Markets Programme," an ECB statement said.

The statement marked a watershed in the ECB's fire-fighting efforts after modest bond-buying last week failed to stem contagion to the currency bloc's larger economies.

It did not explicitly say that effort would now include buying Spanish and Italian paper, but the fact that last week's purchases were confined to Irish and Portuguese paper drove Italian and Spanish 10-year paper to a 14-year high.”

I am really starting to like Reuters.  They actually have a network of foreign correspondents.

And by the way, the ECB will need to create some money to do this.  The price of gold will go up as the money supply inflates, particularly with respect to the Euro.  Short the Euro and buy gold instruments.

As I write this 18 minutes after the world gold market (Globex) opened at 1800 EDT on Sunday,  the price of gold has jumped to a new record high of $1691.40 USD.  More to come.

It will be interesting to see what the stock market does tomorrow.  I am particularly interested in my investment in FAZ.  I may just stay home from work, buy some popcorn, and watch the show.

Saturday, August 6, 2011

We could have avoided the debt downgrade

Two items seem to be missed in media reporting of the S&P long-term US debt downgrade:

The first is that S&P wanted to see at least a $4 trillion cut over 10 years as a good faith "down payment" on getting the debt explosion under control.

The second is that S&P wanted to see cuts in entitlements.  They specifically state:
"...the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability."
And they don't see the government as being capable of cutting entitlements.  The whole aim of politics these days is to promise everyone free money.  One in five dollars of income that people in the US receive comes from entitlements.  To cut any of that is political suicide.  In fact, Obama was elected by promising more money to be given away -- basically buying his way into power.  Obamacare is a prime example.

This is consistent with the Cloward-Piven strategy that Obama was taught by his various Communist mentors since he was 12 years old:  Raise expectations that the government will do more and more.  When crises arise, solve them by promising even more so that each crisis sets the stage for a new crisis later on.  When the economy fails, blame the rich.  When the whole capitalist system finally fails due to these engineered series of crises, it can then be replaced with socialism.

See my previous post The Economic Recovery is Engineered Wrongly April 15, 2010  where I talked about the next Cloward-Piven crisis being caused by sovereign debt.

I find it very interesting that if the original Tea Party Republican debt plan had been passed and signed into law, it would have met all of S&P's criteria:  Four trillion dollars in cuts with reductions in entitlement programs.  But "progressive" Democrats could not bear to "go backward in time" with programs that were "part of the decades-long struggle to take care of all the people".

If the Tea Party would have won, US long-term debt would not have been downgraded.

So this is all Obama's fault.  And again, it is setting the stage for more severe crises later on, just as the stimulus "solved" the economic crisis three years ago, setting the stage for the present crisis.

If Obama wanted to destroy the US, what would he be doing differently?


My solution?  Take a look at the US federal budget for, say, 1950.  Adjust it for inflation, and compare it to this year's budget.  Fund every line item for next year the same as in 1950. Delete anything that was not funded in 1950 (i.e. delete the Great Society stuff, and all the entitlements that have been added since 1950).  This is the initial baseline.

Then adjust however you want, but make sure the budget adds up to the same total.  Fix the income tax at 10% with no deductions or incentives for anything.  Adjust the budget if the 10% tax doesn't cover it.  Do not increase the budget if the 10% tax provides additional revenue above the budget requirement.  (Even the Roman Emperors only required 10%.)  Pass a balanced budget amendment.  And prohibit the government from providing entitlements of any kind.  (In other words, the government has to work within the highly limited powers it was given by the Constitution).

Within a few years this policy will bring vast national wealth, with an unprecedented economic expansion.  There won't be enough people to fill all the jobs that will be created.  Even the poorest among us will be rich.  There will be no disenfranchised for the Democrats to exploit.

But politicians would never pass it, because it gets rid of their power to buy votes with entitlements.  They like people to be poor.  And they despise true freedom.


Friday, August 5, 2011

Today's Fake Jobs Report


The government reported today that the economy added 117,000 jobs in July, and that unemployment had dropped to 9.1 percent.

But how can that be?  Fewer people were working in July than in June.  According to the Bureau of Labor Statistics, there were 139,296,000 people working in July, and 139,334,000 in June.  This represents a drop in employment of 38,000.  So how in the heck can the government claim that jobs were added and that unemployment dropped?

Let’s look at what the government calls “discouraged workers”, who are not included in the unemployment number.  This represents people who are unemployed and not even looking for work anymore.  In July, the number of discouraged workers went from 982,000 to 1,119,000 -- an increase of 137,000.

The remaining discrepancy is seasonal employees, like teachers and such, which I agree should probably not be counted.  But even throwing those out, the unemployment rate still got worse by around 20,000 jobs from June to July.

You can’t trust the government’s fake unemployment number.  It says things are getting better, when the truth is that more and more people are out of work.



Might I suggest that everyone should be mostly in cash/gold for the weekend (6Aug2011-7Aug2011).

The US market could certainly recover (and it is appearing to now, 1330 EDT 5August2011), so you may miss a really big rally, but it is a crap shoot.  Sell into the strength, if it is still there when you read this. 

And gold could certainly go down, since some of its gain is speculation.  But the small drop yesterday in gold I believe was mostly driven by institutions selling to raise cash to cover other losses.

I began unwinding my stock positions last week (mostly out of LVS), moving more to cash, gold, and slowly into a small amount of leveraged financial institution bear (FAZ).  I actually took profits on 2x gold (UGL) today, just because I had a very large amount and was getting a little concerned about “unknown unknowns” over the weekend.  Currently I am at about 40 percent cash (unusually high for me), 20 percent gold (GLD), 20 percent 2x gold derivatives/futures (UGL), and a speculative 20 percent in the leveraged financial institution bear (FAZ), which is still positive today even with the recovery of the last hour.

I am positive on the week.

This is not advice, you may lose your shirt, nothing is guaranteed in investing or life.