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Turning Point Past, Tension Ahead Now that we're past the final part of the 'emotional release' period which ran from roughly September 3 through the 19th, it's now becoming obvious that the last of the release, at least in financial terms, was the Fed going with a larger than expected rate cut this week. Curiously, it is in the fallout from the cut that I can pretty clearly see the 70 days (or so) of rising tension developing, as the dollar declines, which should lead to a resumption of the late November emotional release of energies.
What the Fed has done is drop the dollar to recent historical lows, and the NY Times headlines "Dollar remains at low ebb." Ah, and ebb, is it? I'm glad to know it's just an 'ebb' not a full-scale train wreck, because that's what I expect will come into focus here in the next 70-days or so.
The International Herald Tribune's report that the "Lower US rates damp dollar demand" also seems a bit understated. This weekend, I will give Peoplenomics subscribers some possible price impacts of the dollar decline (along with a handy spreadsheet so person studies of things like your actual home price/valuation change can be assessed) but by far, the two predominate short-term impacts will be on oil prices and imported goods from China.
A 20% decline of the dollar in the market basket price (chart above), implies that $80 oil will become $100 oil, and that a $20,000 imported car will become a $25,000. I think I'll explain to subscribers how we may be in a period when you can 'drive a used Porsche free", too.
The key thing is that the Invisible Depression, Part Two, Week One, ended with a nominal gain in the Dow and the metals, that will likely fade into obscurity next week, as I'd look for the markets to pull back a bit and for recent commodity gains, including metals to consolidate. But, from there, my sense is that we'll be up, up, and away in commodities. (Disclosure: I own commodity options and and am short Oct gold via gold puts while long Dec. silver via call options going into next week - and no, this is not trading advice. It's just my crazed-a** trading. See the site disclaimer.)
The slick thing about the Fed move is that it builds a 'paper bridge' over the 55-60 day danger period for economic collapse, as shown in the following chart:
Naturally, a couple of readers wrote in mightily concerned: "When George gets bullish, doesn't that mean it's time to bail out of everything and get short?" Another called me the 'best contrarian investment indicator on the net." Till a big earthquake which I have penciled in for mid October, anyway...
Because the international purchasing power of the dollar has dropped (Thanks, Ben!) the Canadian Loonie has put in its best weekly performance since 1988. And, on the flip side, because it's a real physical thing that can't just be printed up at will, "Gold near 27-year high as dollar slumps, oil close to record highs" reports CNN Money.
$7 Billion Refinery Royal Dutch Shell has announced plans to build a new refinery down around Port Arthur, Texas. Apparently, these folks haven't heard/read about the global coastal event which continues to accrete values in the linguistics work from www.halfpasthuman.com, but it promises to be a short-term economic bonanza.
But while this promises some short-term construction, engineering, and development jobs, longer term, it will probably result in only a few hundred jobs, if that; the state of refinery automation being what it is an all.
Which brings me to a morning coffee 'ponder point'. There was a time when a $7-billion project would create thousands of jobs. The problem with high productivity capital expenditures is they become more and more efficient till what we're left with is a capex-driven -jobless growth- economy, that I notice no one in policy positions is talking about. With good reason, I suppose. --- And despite the mini-boom this refinery project will create, the Texas legislature continues stealing from the public by selling of publicly funded roads via toll concessions for private interests in order to pocket short-term revenue. Theft by conversion, is what I'd call it. Texas is not alone - that's something going on in all states now under the guide of Public-Private Partnerships. Secretive theft of public assets at sweetheart-deal prices. --- Historically, we're in a
curious period, analogous I'd venture, in many ways, to the mergers of
governments and the Church that happened between 200 A.D. and perhaps the
Middle Ages.
The American Heritage Dictionary's definition of fascism comes to mind: "A philosophy or system of government that is marked by stringent social and economic control, a strong, centralized government usually headed by a dictator, and often a policy of belligerent nationalism." Oh sure, it's an overworked 'hot' word emotionally, but it seems accurate along in here.
This leads me to conclude that the corporation is assuming the same role of the Church in previous times, and thus, corporate interests are now able to play out an updated version of the Spanish Conquest of the New Land. In the historical record, religion was militarily exported to the Americas and in return, the Spanish received boatloads of gold as plunder.
In today's updated corporate version of the same game (power & control, an a piece of the tribute action), the corporations provide a 'war machine' of parallel magnitude (scaled for global population) to export Western values worldwide, and their plunder is debt-paper holders, toll road control, and as we saw this week, "more favored than human citizen" status with bailouts for Wall Street; whilst Main Street (lined with foreclosures) be damned.
Didn't mean to get sidetracked, but the broad view of how corpgov has come into being is important.
Just as the Second Council of Nicaea was a major turning point for the Church powers, where salvation/enlightenment was turns from universally and individually attainable to something requiring obedience to authority and payment of some kind to get there, so too, the recent diminution of individual rights in America for corporate purposes has established the corporate interest above humans in such areas using such tools as eminent domain, and the list goes on.
Freedom, like enlightenment prior to the Second Council, is being contained, quashed, and squashed by a Power Elite that now effectively runs a single-government system in the USA. Corporations mostly give money to both the democorps and republicorps, and the power-trippers seeking ego fulfillment in office gladly take the bait.
Not that the process has been overnight, but rather progressive. As just a single example, recall how government/corporate interests started licensing us of 'the air' with the imposition of the Communications Act of 1934, and the progressive theft of free access and imposition of government control has continued ever since. Witness the corporate moves for another internet and efforts to sink net neutrality, more recently. Accountability for the use of the airwaves was ended in the 1980's as corporate broadcasters successfully lobbied against annual reporting and Public Broadcasting was held up as an adequate check and balance. All of which gets me to:
Rather Leaking Truth It's against this historical perspective (which we could debate endlessly, I'm sure) that we read up on how Dan Rather is suing his one-time masters at CBS for $70-million. He's making an issue of government and corporate influence over newsrooms:
All of which sounds quite laudable, but is it? An LA Times headline suggests "Dan Rather wanders too far off script" while somewhere in the back of my mind, I recall Rather is reported to be a co-owner in a ranch with, among others, former Secretary of Defense Donald Rumsfeld.
Egged On Turns out human eggs may be grown outside the body, says some new science. With the world grossly over-populated, why fertility research is worthy of so much spending is just beyond my pay grade. What happened to adopt?
Tropically Depressed
Thompson Quip On the light side: Fred Thompson video clip. "My wife would make a much better First Lady than Bill Clinton, what do you think?"
Castro's Reading Material An alert Fidel Castro was on TV in Cuba this week...and holding a copy of Alan Greenspend's book, if I am looking at this picture right.
Cell Phone Damage Headline this: "Using your mobile over an hour a day can harm hearing." Say what?
License Illegals Oh yeah - now the state of New York has dropped the requirement for showing proof of citizenship to get a license to drive. But wait! What about the corpgov push for RealID?
Is the world nuts? Oh, foolish me. I withdraw the question.
Where is East Farmerly Astronomy: Because I am all wrapped up in construction/remodeling and such due to our Great Water Heater Disaster of 2007, I forgot to mention that you can run out at sunrise this morning and watch where the sun pops up, and where it sets tonight. Put a take in the ground in a line from your observation point to the sunrise this morning. Tonight return to exactly the same observation point and then another line at tonight's sunset. Or, if you read this column late, do the sunset tonight and the sunrise tomorrow.
A string or line stretched between the two stakes will give you very, very close to an exact East-West line (better had we done this yesterday morning and again this morning and the two night observations, but it'll be damn close. A line perpendicular to your string will be the North-South line where you live.
If you don't trust your eyeballs, you can get a string which is 2/3'rds the length of the stake-to-stake distance and put a loop on one end of it. Then slip the loop over one stake and draw a half circle between the stakes. Repeat this circle drawing for the other stake and you'll find that at two places the circle scribing will intersect with a couple of rounded x's. A line between these two x's will be your perpendicular line to east/west, the north-south line.
When you get your lines drawn, and are confident that you know will then be able to calculate with Mayan-like precision whether your home was oriented by detail-oriented people, or just thrown onto the property by randomists, who didn't take the time to square things up.
Oh, yeah, this also qualifies you to become a "46th-degree UrbanSurvival Practitioner."
Peoplenomics: Can the Dollar's Death be Cheated This Week? This promises to be one hell of an interesting week, and although the original plan (Saturday's, but these things are constantly changing) was to write up the likelihood of China not putting up with Taiwanese independence (to the point of UN recognition) has to take a backseat to the more complex global economic stew: "Can dollar death be cheated, once again?" We've got a number of things to look at, including my "peak to crash" chart, some nuances from my OBV options theory, the Fed meeting, Greenspan comments, and more, not to mention building tensions in the Middle East and even a new investment idea - so let's turn on the 'analysis blender' and see if we get daiquiris or garbage disposal output, shall we? The 19th/Turn Date is almost here, and there are plenty of 'life shifting' events out on the horizon to be considered. Got coffee?
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Friday September 21, 2007 Triple Witches Take Profits and Fly After some deliberating, I decided to book some commodity profits, setting up for the end-of-month weakness that I expect next week. On the first day of fall, my commodity account is up 244% while my stock about is now down 98% because I went short in a major way and the Fed move this week put the nail in my S&P puts, so my overall return for the quarter is only 11%. --- In addition to clearing my gold call options, I also cleared my corn (nature's gold) options, as well. With the except of a few silver calls for December, I'm basically sitting in cash. Come next week, I will likely re-enter positions, but I expect some end-of-month downward pressure in the very short term, especially for gold, which some of my friends think will be pressed down to the $700 range.
THIS IS NOT TRADING ADVICE - THIS IS WHAT I AM DOING IN MY OWN ACCOUNTS. SEEK PROFESSIONAL ADVISE. READ MY DISCLAIMER PAGE! --- Although the Fed move took many by surprise, I was even more surprised when I received an email informing me that Fed Governor Frederick Mishkin has a new paper out titled "Will Monetary Policy Become More of a Science?" Shoot, I though they had developed the art of torpedoing my put option to a 'science' already. Writes Miskin in the opening:
While I've got the balance of the paper on my reading list, a quick scan didn't find the word foreclosure, and the word "political" was only used once outside of foot notes and the appendix, so it's going to take more reading of what's between the lines to figure out what he's saying. A scan of a few more pages says it's a sales piece for Fed control of of inflation and employment, but no where does the term "sound money" appear. Call me a cynic... "Cynic!"
What Sound Money? Clearly, the decisions the Fed is making are outside of historical norms - and after Greenspend managed to roughly halve dollar purchasing power during his tenure at the Fed, we can only surmise that Bernanke, et al, will continue that fine tradition. Headlines like "Euro roars to record high 1.4120 dollars" attest to the notion that 'Printing Press Ben" is off to a fine state.
Think I'm being to harsh on the Fed? Well, you don't need George Ure to do that - there are Canadians, after all. Not exactly dancing in the streets, but "Canada "loonie" on par with US Dollar" makes a more convincing case that me. Ooops - over par now. So sorry.
As the People's Economist, I would argue that the price of oil, which is making new highs lately, still has the same intrinsic value as it had 5-years ago. What has changed? The purchasing power of the dollar. Oh, and as the dollar gasps, "Oil puts Canada's currency ahead of the US dollar" notes one headline. Yessir. Got that.
Peak Oil What escapes the attention of the popular press (with a few shining exceptions) is that we have two massive 'super trends' that are colliding right in front of your investment portfolio, and yet the implications of the collapse are not seen by the average investor.
In addition to the Fed hollowing out purchasing power of the dollar (to bail out the multi-gazillionaires who made bad/greed-driven subprime predatory loans, and then sold them off as triple A paper, there's this little matter summed up in this morning's Globe and Mail:
"Two barrels of oil are used for each one found. $100 oil anyone?"
My guess? Given that we don't have a massive economic shock (like Quake #3 in the linguistic outlook hitting a key production or shipping center for global trade) I would have to expect that by this time next year, the price of oil will be more on the order of $140 - because as the Fed goes with the 'easy money' plan, not only will pernicious long-term inflation be setting in, but along with that the short-term economic stimulus will continue to drive up demand. Inflation plus resupply shortage by oil. Gee, let me think: What might that spell for oil prices?
Waiting Around for Inflation We're not alone, thinking this way. John Waggoner writes in USA Today this morning that "Inflation Lurking? Adjust portfolio just in case." --- Inflation shouldn't take all that long to show up. You can get snips of it everywhere - it's not not actually here yet. And besides, when it does show up, we have a one or two month period of hysterisis (time lag) till the new price levels are recorded by the guv'mint and then they will be hedonically hoaxed up as best they can to show "Everything is normal, this is a great economy, Citizen."
Don't Overlook Climate Changes, Either One of our tea-drinking readers, who gets the daily newsletter from the UK's Nothing But Tea web site and tea store, said that yesterday's newsletter basically advised customers that climate change might have some impact on tea prices sooner than later:
They pointed out some positives too, but I got the sense that weather would impact my periodic sips of orange spiced tea, a habit on hold for the past few months due to the high temps here in East Texas. --- Remember that food prices are a combination of input costs - and oil is among those, too. So if you have bad weather and rising oil (which hit $84 yesterday), you have to figure that what's in the supply chain will be going higher.
A year ago, my neighbor was paying about $8.75 for a 50 pound sack of medicated goat feed. I just bought some and it was over $10. Pencil in at least 18% inflation for meat goats, and I expect, similar increases for chickens, cows, anything that eats.
Remember that food prices were up 4.2% in the latest reporting month and that hasn't escaped notice of the national agriculture folks.
Email of the Day From up in the Front Range country:
Our lower interest rates don't just look bad to international investors, they look "butt ugly, whupped with an ugly stick" outside our own borders. Let's say you were in China and you bought a US Treasury paying 5% when the dollar was at 82 on the market basket.
today the dollar has traded down to about 78.30. Let's do the math. 78.30 divided by 82 is .954878%. 1 minus that means the currency swing overseas has just dropped the purchasing power of the treasury instrument by 4.5%. Now, since this might happen in less than a year, you can see where the Chinese would be getting nervous: They have dollar denominated instruments that can drop faster than the interest accrues -- following this?
On the second part of your question: No, the Fed didn't exactly print money. What they did was encourage others to print money.
When is money created? If I sell you a widget on a time payment plan and charge interest, I am really 'creating money'. So by lowering interest rates, the Fed is encouraging more borrowing and economic activity. While it may not show up in M1 or M2 (and remember they hid M3), the corporate creation of money goes balls out. Housing loans fire up a bit, and inflation follows.
The art of being a Fed governor (or Chair) is to keep these things running by your own plan, remembering that we are in an "Invisible Depression" and so the balance is delicate between hyper inflating and wild deflation. Hope this helps...
Ure Construction and Plumbing We got the subfloor which was soaked by our water heater disaster all exposed yesterday. Now, just a couple of hours to replace the subfloor, rough in the replacement supply pipes and run the 10-2/g wire, pop in the new breakers, and we should be back in hot water today. I'll try to get a picture for tomorrow of the demolition work - been quite a project - and much to her credit, Elaine has been doing a lot of it. Such is life on a homestead. Teamwork followed by a beer. It's a lot more personable that texting back and forth to your spouse, and for sure more fun... --- That will leave me all weekend to finish up the goat fencing - just 600 feet of fence to go. Yee haw!
Thursday September 20, 2007 Update: The New Five Dollar Bill No, not a Amero - think of this as a Purple Back. New from those "All debts public and private" guys. Hey! Maybe the recession will be a one-eyed, one-gov, flying purple paper-eater, huh?
Hell, I'm sol old I can remember when money (paper) was backed byt he "full faith and credit of the United States." Whatzzat?
$5 doesn't go far on Wall St. so let's open that repo window!
Invisible Crash - Part Two, Day Two Grudgingly, I have to admit that the Powers That Be and the Fed have been doing a swell job of managing the Invisible Crash - which is what I call it simply because most people don't get what's going on right in front of them. It's almost like a game of three-card Monte. While the nimble fingered trickster might object, "Call it "follow the Lady," they'd say, I call it "Follow the Bubble, Follow the Terror Show, and then Follow the Dollar," around here.
To bring you up to date The Beginning of the Second Depression came in March 2000 when the markets hit all-time highs and the Big Decline began. As it picked up steam on the downside, millions of investors lost trillions of dollars. Then, about the time that the SEC was getting ready to really do something about naked shorting, and (then there's the gold and silver) etc., along come a couple of airplanes which wiped out two buildings and their contents, which in turn gives rise to a War On Terror (a modern analog to the Civilian Conservation Corp of the 1920's and the Works Progress Administration), and that has just been trumped (no, not the Don) by the surprise rate reduction this week. You "follow the Lady" here, right?
Not that I would do anything differently if I had a few trillions: Imagine the pandemonium, human suffering, loss of jobs/life/economic clout, that would have accompanied the US's descent into an obvious Second Depression should the WTC attack not taken place! There would be no missing data for the SEC, there would be not War on Terror, there would be no Operation Iraqi Freedom, and Saddam Hussein would still be alive, although he'd be isolated and still trading oil under the table, no doubt. Oh, and something north of half a million Iraqi civilians would still be breathing.
Instead what we have is an OK economy (as long as you believe the numbers), a huge variable-spending opportunity to keep the economy going, and a Fed that continues to try and walk the tightrope between an inflationary workout of things (like the Weimar Republic) or a deflationary work out like the USA's first Great Depression.
So what's an investor to do? First, let's be realistic.; If you try to get straight answers, such as the real report on 9/11/Twin Towers (Why did building 7 fall down unless it was a rigged explosion, anyway?), or trying to get a question answered by one-time presidential hopeful John Kerry, you're like to get tased (or worse) and that's that. Or, if your actions can be wildly construed as supportive of "terrorists" then your property can be seized and you'll be out on the street. So, let's not rock the boat, at least too much. --- Now, here we are at the precipice of what could be a huge decline in purchasing power of the US Dollar and the Fed continues its great economics experiment, gambling (with the whole world's global economy in the pot (to put it in Texas Hold 'Em terms, we're all in on this) walking that tightrope. However, an investor like me sees two immediate impacts.
The first is that the US is probably about top lose it's place as the World Reserve Currency. What that means in a nutshell, is that the USA's paper won't buy as much as it used to. Check the dollar basket price above and you'll see that today it took out 79 and dropped down to the 78+ range.
OK, in reaction to that we're seeing the price of commodities go up. Gold is up, silver is up, oil is up, and even my corn play on the commodities exchange is doing just dandy. So well, in fact, that my broker JB called this morning to tell me that my "nature's gold - corn" was looking good at the open because exports nearly doubled in the latest reporting week. Fine. Saw that coming.
THIS IS NOT A RECOMMENDATION TO BUY OR SELL ANYTHING IN YOUR ACCOUNTS. I WRITE THIS SITE BECAUSE I FEEL LIKE IT AND IT'S ABOUT MY OWN EXPERIENCES AS A JOURNALIST AND ECONOMIST AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE. INVESTING THE WAY I DO INVOLVES SUBSTANTIAL RISK AND MAY RESULT IN THE LOSS OF 100% OF YOUR INVESTMENT. IN COMMODITIES, YOU CAN EVEN LOSE MORE THAN 100% IF YOU DON'T KNOW WHAT YOU'RE DOING. SEEK PROFESSIONAL ADVICE BEFORE TRADING. CONSIDER GAMBLERS ANONYMOUS. OPTIONS TRADING AND STOCK TRADING INVOLVES RISK. DO NOT BET MORE THAN YOU CAN AFFORD TO LOSE. (Whew! Need more coffee after that.).
The second point is that George in the outback of East Texas (we still get tax bills and have an Outback up the road, so it's not exactly the ends of the earth) is not the only one who sees the dollar losing value. Take the headline "Fears of dollar collapse as Saudis take fright"
Much to their credit (or is that debt?) the Fed so far seems to have engineered a fine and orderly decline of the dollar. Naturally, the way I see it, real things are just about guaranteed to go up in price as the dollar declines. Things like anything made overseas, because the dollar won't buy as much there anymore. Yet, despite the prospect of $800-$1,000 gold, $100 oil, |
