Next week may be an important turning point for America. It holds a very key date.....
No, not Election Day - Tuesday, November 2nd, where Americans for the most part get to choose between two sides of the same coin.
The key date is Wednesday, November 3rd, when the Federal Reserve announces to the world the details of QE2, the second round of its quantitative easing or money printing.
The first round of massive money printing occurred during the peak of the financial crisis. It can be summed up as a lifelife for American policymakers and their Wall Street banking cronies, but it was a disaster for the American public.
Not only did the Federal Reserve nationalize the banks' losses but more importantly Mr. Bernanke's money creation efforts have seriously undermined the viability of the US Dollar.
As any student of history knows, there is no such thing as a free lunch. By creating additional trillions of dollars out of thin air, Mr. Bernanke may succeed in bailing out his friends in high places but he is seriously jeopardizing the country's currency and its future.
And look where the money is going...To Wall Street and its new way of making fast money - high frequency trading. High frequency trading now accounts for about 70 percent of the daily trading volume on the stock exchanges.
Their specialty is speculating..they trade stocks as if they were playing slot machines. According to an estimate from Raymond James analyst Patrick O'Shaughnessy, the holding period for stocks is mere seconds, around 11 seconds.
Whatever happened to actual investing and holding stocks for years? Wall Street just spends all day gambling, grabbing a penny or two on millions of shares of stocks and on thousands of individual stocks.
These are the people that the Federal Reserve is gambling the future of the Dollar and our nation on. I don't know about the readers, but I find that deeply troubling.
From an investment standpoint, that tells me to keep doing what I have been doing, especially if we see a correction downward in prices.
And that is to move into real assets - commodities and commodity producing companies and into other countries, especially emerging markets, and into other currencies like the Australian Dollar where savers can still get a decent rate of return, due to higher interet rates, on their money.
Saturday, October 30, 2010
Saturday, October 23, 2010
More Wall Street Bad Behavior
It should not come as a surprise to anyone that if you reward behavior, even bad behavior, you will get more of the same.
Wall Street banks "misbehaved" so badly that it put the entire global economy at risk.....
They created securities which they knew was filled with near-worthless mortgages and other 'gems', paid off the ratings agencies to rate the securities as ultra-safe AAA, had their 'snake oil' salesmen selling these pieces of garbage all over the globe, then actively bet against their clients that the securities would go down in price.
All of this was done in the name of making billions of dollars for themselves, while leaving the taxpayers holding the bag for billions of dollars worth of bailouts.
And Wall Street's punishment? Nothing but a slap on the wrist. Wall Street paid a few millions in fines (which they can earn in a few hours of trading, since they are front-running trades) and got "reform" which was no reform at all.
The result? More bad behavior from Wall Street banks - improper and perhaps fraudulent foreclosures on peoples' homes.
Several large US banks were forced to halt foreclosures in a few dozen states that require banks to go to court to repossess delinquent borrowers' homes
This occurred after it emerged that the documents were being rubber-stamped by "robo-signers". Robo-signers were bank "officials" who signed up to 10,000 forms a month while hardly glancing at them.
The banks and their defenders say that this is all a bureaucratic technicality and much ado about nothing.
What a bunch of BS! The fact that the major Wall Street banks regard court proceedings to repossess homes so lightly is a worrying reflection on Wall Street's ethical standards. Or more precisely, the lack of them.
At worst, the banks may have been lying to courts over a vital safeguard in property law - the sanctity of documents.
The hope is that the courts will take a very dim view of this. And the individual states too...the attorney generals in all 50 states are investigating the matter.
Hopefully, the states will hold the banks' feet to the fire. Show Wall Street that its contemptous approach to their legal responsibilities is unacceptable.
Wall Street banks "misbehaved" so badly that it put the entire global economy at risk.....
They created securities which they knew was filled with near-worthless mortgages and other 'gems', paid off the ratings agencies to rate the securities as ultra-safe AAA, had their 'snake oil' salesmen selling these pieces of garbage all over the globe, then actively bet against their clients that the securities would go down in price.
All of this was done in the name of making billions of dollars for themselves, while leaving the taxpayers holding the bag for billions of dollars worth of bailouts.
And Wall Street's punishment? Nothing but a slap on the wrist. Wall Street paid a few millions in fines (which they can earn in a few hours of trading, since they are front-running trades) and got "reform" which was no reform at all.
The result? More bad behavior from Wall Street banks - improper and perhaps fraudulent foreclosures on peoples' homes.
Several large US banks were forced to halt foreclosures in a few dozen states that require banks to go to court to repossess delinquent borrowers' homes
This occurred after it emerged that the documents were being rubber-stamped by "robo-signers". Robo-signers were bank "officials" who signed up to 10,000 forms a month while hardly glancing at them.
The banks and their defenders say that this is all a bureaucratic technicality and much ado about nothing.
What a bunch of BS! The fact that the major Wall Street banks regard court proceedings to repossess homes so lightly is a worrying reflection on Wall Street's ethical standards. Or more precisely, the lack of them.
At worst, the banks may have been lying to courts over a vital safeguard in property law - the sanctity of documents.
The hope is that the courts will take a very dim view of this. And the individual states too...the attorney generals in all 50 states are investigating the matter.
Hopefully, the states will hold the banks' feet to the fire. Show Wall Street that its contemptous approach to their legal responsibilities is unacceptable.
Saturday, October 16, 2010
The Stock Market Rally Continues
The rally in US financial markets continues unabated as Wall Street continues to party in anticipation of the Federal Reserve's purchase of $1 trillion worth of assets.
In other words, as mentioned in last week's article, $1 trillion of money created out of thin air by the Federal Reserve will flow directly into Wall Street's coffers.
But let's take a step back and ask ourselves whether these levels of stock market valuation are justified.
The S&P 500 is currently selling at a PE ratio (price/earnings) 50 percent higher than the long-term historical average. Investors must think that corporations are going to grow 50 percent faster than they did during most of the 20th century.
Does that even begin to make sense? Well, let's see.....
There is about $20 trillion worth of bad credit still to be eliminated...so many houses are headed to foreclosure that banks have had to stop taking them back...unemployment is at levels not seen since the Great Depression with the "real" unemployment - U6 - over 17 percent.
And let's not forget that what little economic growth we've had has come from the government and now Uncle Sam is headed for a debt crisis - the US government now borrows a dollar for every dollar it receives in taxes! No wonder the dollar keeps spiraling down!
Yep, it makes sense - not. What is happening here is that the Federal Reserve believes that all economic problems can be solved by creating money out of nothing, and giving it to Wall Street, creating one financial market bubble after another.
Speaking of bubbles, the biggest of them all - the US Treasuries market - continues growing. It is being aided by continuing flows from individual investors into bond funds, thinking that these funds are safe.
The numbers speak for themselves. More money has flowed into bond funds over the past year - $412 billion - than flowed into stock funds in the 12 months leading to the 2000 dot.com tech bubble high - $312 billion. I don't have to tell anyone what happened to those investors.
What do I expect? I would expect a solid correction in at least the stock market during the period in early November when the Federal Reserve "officially" announces how much money they're going to print - "buy the rumor, sell the fact".
If that does not happen and Wall Street keeps inflating the bubble, then we won't see a correction until at least mid-January. And then it could be a very nasty one, ala 1987.
In other words, as mentioned in last week's article, $1 trillion of money created out of thin air by the Federal Reserve will flow directly into Wall Street's coffers.
But let's take a step back and ask ourselves whether these levels of stock market valuation are justified.
The S&P 500 is currently selling at a PE ratio (price/earnings) 50 percent higher than the long-term historical average. Investors must think that corporations are going to grow 50 percent faster than they did during most of the 20th century.
Does that even begin to make sense? Well, let's see.....
There is about $20 trillion worth of bad credit still to be eliminated...so many houses are headed to foreclosure that banks have had to stop taking them back...unemployment is at levels not seen since the Great Depression with the "real" unemployment - U6 - over 17 percent.
And let's not forget that what little economic growth we've had has come from the government and now Uncle Sam is headed for a debt crisis - the US government now borrows a dollar for every dollar it receives in taxes! No wonder the dollar keeps spiraling down!
Yep, it makes sense - not. What is happening here is that the Federal Reserve believes that all economic problems can be solved by creating money out of nothing, and giving it to Wall Street, creating one financial market bubble after another.
Speaking of bubbles, the biggest of them all - the US Treasuries market - continues growing. It is being aided by continuing flows from individual investors into bond funds, thinking that these funds are safe.
The numbers speak for themselves. More money has flowed into bond funds over the past year - $412 billion - than flowed into stock funds in the 12 months leading to the 2000 dot.com tech bubble high - $312 billion. I don't have to tell anyone what happened to those investors.
What do I expect? I would expect a solid correction in at least the stock market during the period in early November when the Federal Reserve "officially" announces how much money they're going to print - "buy the rumor, sell the fact".
If that does not happen and Wall Street keeps inflating the bubble, then we won't see a correction until at least mid-January. And then it could be a very nasty one, ala 1987.
Saturday, October 9, 2010
QE2 Ready to Sail
People ask me why the US stock market has been so strong lately. The answer is simple - QE2.
No, not the ship. QE2 stands for the second round of Quantitative Easing (money printing) from the US central bank - the Federal Reserve.
Much like QE1, it is expected to be in the one trillion dollar range. And like the first round, Wall Street is expecting that money will flow directly into its coffers, with very little trickling out to Main Street.
That gives Wall Street a lot of money to "play" with and speculate. Plenty of money to push bubble stocks like Apple even higher.
And importantly to Uncle Sam, it allows Wall Street to buy more of its debt and keep the Treasuries bubble going too.
Bottom line - with a trillion dollars, you can throw a heck of a party (for a while).
And as mentioned in prior articles, Wall Street could care less that this money printing is slowly destroying the US dollar.
They are not concerned about 'real' returns, but only nominal returns which allows them to pay themselves large bonuses every quarter.
But the value of the US dollar is important to the average American. Look at what has happened since all ties were removed to the gold standard by President Nixon in 1971.
With nothing to hold the Federal Reserve back, the US money supply increased 1,314% between 1970 and 2008...and the stock market rose 15 times - right in line with the money printed. That is why Wall Street celebrates every time more money is printed.
But for the average Joe, it's a different story. Consumer prices rose fivefold during the same time frame. So any nominal gains in salary were eaten up by a three-quarter decline in the value of the dollar and inflation.
This led to an ever increasing income gap between the classes.....
During the 1960s, the bottom 90% of the population got 60% of the income gains of the period. But by the end of 2007, that segment of the population got only 11% of the income gains.
Half the nation's income today goes to the 20% of the population,nearly twice as much, compared to the bottom 20%, as in 1967. This is the largest gap ever recorded.
Nothing is being done to stop this insanity. Congress is doing its usual smoke and mirrors act and blaming those 'manipulating' Chinese for all of America's economic woes.
Their 'solution' will only result in higher prices for American consumers and a movement of jobs from China to lower-income countries around the globe.
Meanwhile the real problem is reckless fiscal and monetary policy the United States has followed over the past 40 years. Unfortunately, these policies show no signs of ending any time soon.
Here is something I read this week at the Daily Reckoning website which puts things into perspective:
"What's the difference between a thief and a counterfeiter? A thief takes what is not his without another's consent. A counterfeiter passes off as genuine that which he knows to be a fraud. Or, in simpler terms, one is a politician and the other is a central banker."
No, not the ship. QE2 stands for the second round of Quantitative Easing (money printing) from the US central bank - the Federal Reserve.
Much like QE1, it is expected to be in the one trillion dollar range. And like the first round, Wall Street is expecting that money will flow directly into its coffers, with very little trickling out to Main Street.
That gives Wall Street a lot of money to "play" with and speculate. Plenty of money to push bubble stocks like Apple even higher.
And importantly to Uncle Sam, it allows Wall Street to buy more of its debt and keep the Treasuries bubble going too.
Bottom line - with a trillion dollars, you can throw a heck of a party (for a while).
And as mentioned in prior articles, Wall Street could care less that this money printing is slowly destroying the US dollar.
They are not concerned about 'real' returns, but only nominal returns which allows them to pay themselves large bonuses every quarter.
But the value of the US dollar is important to the average American. Look at what has happened since all ties were removed to the gold standard by President Nixon in 1971.
With nothing to hold the Federal Reserve back, the US money supply increased 1,314% between 1970 and 2008...and the stock market rose 15 times - right in line with the money printed. That is why Wall Street celebrates every time more money is printed.
But for the average Joe, it's a different story. Consumer prices rose fivefold during the same time frame. So any nominal gains in salary were eaten up by a three-quarter decline in the value of the dollar and inflation.
This led to an ever increasing income gap between the classes.....
During the 1960s, the bottom 90% of the population got 60% of the income gains of the period. But by the end of 2007, that segment of the population got only 11% of the income gains.
Half the nation's income today goes to the 20% of the population,nearly twice as much, compared to the bottom 20%, as in 1967. This is the largest gap ever recorded.
Nothing is being done to stop this insanity. Congress is doing its usual smoke and mirrors act and blaming those 'manipulating' Chinese for all of America's economic woes.
Their 'solution' will only result in higher prices for American consumers and a movement of jobs from China to lower-income countries around the globe.
Meanwhile the real problem is reckless fiscal and monetary policy the United States has followed over the past 40 years. Unfortunately, these policies show no signs of ending any time soon.
Here is something I read this week at the Daily Reckoning website which puts things into perspective:
"What's the difference between a thief and a counterfeiter? A thief takes what is not his without another's consent. A counterfeiter passes off as genuine that which he knows to be a fraud. Or, in simpler terms, one is a politician and the other is a central banker."
Saturday, October 2, 2010
Gold and the US Dollar
I'm often asked about gold and whether it is in a bubble. People hear the talking heads on TV say that gold is a bubble.....
The same talking heads that missed the dot-com bubble, the housing bubble, and are now missing the current bubble in bonds. But somehow these "experts" see a bubble in gold.
First of all, let me say that gold will go back down a $100 or $200 an ounce soon, but that will simply be a correction in gold's ongoing bull market.
Although it may be more correct to say that it is an ongoing bear market in the US dollar. Remember that gold is priced in US dollars, so as the dollar drops gold will rise.
I always find humorous those ads on TV urging people to take advantage of high gold prices to get rid of their unwanted jewelry...exchanging it for cold, hard cash.
Only the cash isn't all that "hard". From just a year ago, the cash is worth about 20% less the gold people sold a year ago.
This serves to underline the biggest mistake I see both novice and sophisticated investors make. Investors do not take into account the value of the dollars that they own.
Take a simple example. Let's say stock A is trading for $100 a share. Then a year later it is trading at $120 a share. Most investors would be overjoyed - "Hooray, I made 20% in one year on my investment!"
But then let's say, due to the Federal Reserve printing money madly and other stupid federal government policies, the US dollar drops by 25% in value over that year.
In real terms, the buying power of the dollars you invested has declined. So in real terms, you have NOT made 20% on your money, you have actually LOST 5% on your money!
That is how the Feds continue to pull the wool over Americans' eyes. They continue to devalue our currency and then blame scapegoats like China. The problem isn't China...the problem is that the US dollar has been on the decline for decades.
I smile when people boast about how Apple went from $200 to $300 a share. Yes, I ask but how much have you really made. They look at me like I'm nuts.
That's the beauty of gold. It has been a store of value for thousands of years. Gold isn't a speculation or really even an investment.
It is an insurance policy. It protects the value of your assets over the very long-term so you can pass on your wealth to the next generation.
There is no paper asset, including the US dollar, that has ever done that in the history of humankind.
But back to the question of a gold bubble. Yes, it will eventually reach a bubble price, but not for a long time.
Ordinary people do not own gold. Most people couldn't tell you the price of gold within $200. They cannot imagine that the US dollar is not a safe place for their wealth.
Eventually, they will see the light. When that happens, the public will panic and gold will skyrocket in price. $2000? $5000?
Who knows how high gold will go. But the height of the stampede into gold will be the time to sell it. Keep just enough as an insurance policy and move the rest into other assets which will be dirt cheap because of the ongoing panic by the public.
The same talking heads that missed the dot-com bubble, the housing bubble, and are now missing the current bubble in bonds. But somehow these "experts" see a bubble in gold.
First of all, let me say that gold will go back down a $100 or $200 an ounce soon, but that will simply be a correction in gold's ongoing bull market.
Although it may be more correct to say that it is an ongoing bear market in the US dollar. Remember that gold is priced in US dollars, so as the dollar drops gold will rise.
I always find humorous those ads on TV urging people to take advantage of high gold prices to get rid of their unwanted jewelry...exchanging it for cold, hard cash.
Only the cash isn't all that "hard". From just a year ago, the cash is worth about 20% less the gold people sold a year ago.
This serves to underline the biggest mistake I see both novice and sophisticated investors make. Investors do not take into account the value of the dollars that they own.
Take a simple example. Let's say stock A is trading for $100 a share. Then a year later it is trading at $120 a share. Most investors would be overjoyed - "Hooray, I made 20% in one year on my investment!"
But then let's say, due to the Federal Reserve printing money madly and other stupid federal government policies, the US dollar drops by 25% in value over that year.
In real terms, the buying power of the dollars you invested has declined. So in real terms, you have NOT made 20% on your money, you have actually LOST 5% on your money!
That is how the Feds continue to pull the wool over Americans' eyes. They continue to devalue our currency and then blame scapegoats like China. The problem isn't China...the problem is that the US dollar has been on the decline for decades.
I smile when people boast about how Apple went from $200 to $300 a share. Yes, I ask but how much have you really made. They look at me like I'm nuts.
That's the beauty of gold. It has been a store of value for thousands of years. Gold isn't a speculation or really even an investment.
It is an insurance policy. It protects the value of your assets over the very long-term so you can pass on your wealth to the next generation.
There is no paper asset, including the US dollar, that has ever done that in the history of humankind.
But back to the question of a gold bubble. Yes, it will eventually reach a bubble price, but not for a long time.
Ordinary people do not own gold. Most people couldn't tell you the price of gold within $200. They cannot imagine that the US dollar is not a safe place for their wealth.
Eventually, they will see the light. When that happens, the public will panic and gold will skyrocket in price. $2000? $5000?
Who knows how high gold will go. But the height of the stampede into gold will be the time to sell it. Keep just enough as an insurance policy and move the rest into other assets which will be dirt cheap because of the ongoing panic by the public.
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