Is the air getting thinner up here, or am I just having a "Deja vu" moment after a year of Lehman Brothers, Bear Stearns, Merrill Lynch, AIG, bailouts, GM, Chrysler, Fannie, Freddie, the mortgage crisis, gold spikes, Greece, Portugal, Derivative doldrums, dollar demise, Euro borrow, Volcanoes, sub prime, Fab Fabrice, Bernie madoff and who ever else "made off" !!
Should we feel good about the great earnings reports coming in this quarter, or feel nervous because those earnings may be thin air themselves as bailouts and new accounting rules fudge the real numbers? And what was the problem with those big investment banks....hhmmmm, oh yes, now I remember, the 3 $Trillion or so in poisoned mortgage derivatives those banks somehow do not show on their books any more? Hmmmm.......Now where oh where did those numbers get to.......must have misplaced them I guess.
Actually, since I have done quite well over the past 12 months, I'm feeling pretty good. Maybe I'll go to the black jack table again and try my luck, or maybe roulette this time. No, craps, now that's the ticket.......or maybe......well.......if I took my winnings and put it in the bank for awhile........hmmmm decisions, decisions!
Updated Dec 18th 2009 -The price of Gold is going up again, even though the talking heads (cnbc etc) are starting to tell us that King dollar is coming back. They must be only looking at their 3 month charts because they couldn't be more wrong about the dollar or about Gold (or other commodities for that matter) and here is why!
The elephant in the room is this: America is over $12 Trillion in debt and climbing. Check out the U.S. Debt Clock! If America does nothing to stop the bleeding, it will be $23 Trillion in Debt by the year 2020, more than 100% of GDP (that's only 10 years out). Now consider these 800 pound gorillas in the room trying to make space around the elephant:
1. The U.S. Fed is still propping up markets, and making massive asset purchases like mortgage backed securities while fully 25% of mortgages are underwater, and that number will increase through 2011 by all projections.
2. There are 2.4 $Trillion in ALT-A (Liar) Loans and sub-prime mortgages still out there and most don't reset until 2010 through 2015. If the Fed was not propping up this market including Fannie Mae and Freddie Mac, it would start another stampede for the exits. If they continue, then add that $2.4 Trillion to the debt numbers above. If they don't, just watch as millions more lose their homes.
3. As commercial real estate companies loans come due this year, they will run into a wall of re-financing problems as their lenders won't want to extend more credit, or will demand more security, or both. Only the strong will survive.
4. The banking industry expects up to 1,000 bank failures in 2010, because of the mortgage fiasco. Not last year, next year!
5. Many big financial institutions (remember all those who were "too big to fail") are still virtually ignoring the massive derivative debt on their books as they pay back those Government loans. (Yes, they leave them off of their books as if they didn't exist at all) They will have to be accounted for at some point. As that reckoning occurs, this problem all by itself will cause the dollar to drop.
6. The USA is still fighting two wars, on three fronts, after the President who launched both of those wars did not raise taxes to pay for them but, on the contrary, made two massive tax cuts in the middle of those two wars, something no other U.S. President had ever done throughout it's history.
7. The new health care bill will cost at least $1 Trillion dollars over 10 years.
8. Americans pay about 25% of the cost of Gasoline that the rest of the world pays.
9. The price of Gold is denominated in U.S. dollars.
The above really only addresses the American market, but the world of business has grown much larger. India and China are increasing their Gold reserves by huge amounts as they no longer trust the value of their U.S. dollar reserves. Brazil and Russia are doing the same. Russia has even added Canadian dollars to their reserves as the world tries to diversify around a falling U.S. buck.
These rising powers are also buying up commodities, oil, gas and mining companies. China has told all of it's 1.3 Billion citizens to also buy gold for their savings. India used to be the largest retail gold market (for it's dowry practices etc) but now China has taken over the number 1 spot.
Some market bulls believe Gold will top out somewhere between $2,000 and $5,000.
An inflation monster is coming and most of all the gold in the world is already above ground. That makes producing gold miners, expecially the juniors, takeover targets for the big dogs.
700 Billion, here, 700 billion there, 450 billion over there, pretty soon your talking real money! WOW!! Is the good ole U.S of A. being sucked downward into a giant economic hole it won't be able to crawl out of?
Some say that is what is happening as the Americangovernment prints more money to stimulate their faltering economy. The practice of "Quantitative Easing" (printing more money for circulation) has certainly been tried, on a smaller and more local scale, in Japan during the 90's. It lead to stagnation and at least a 10 year drag on their markets. Will this, much larger printing be different for America, (and the world) markets.
Are the Keynesian economists who have advocated this easing, right, or are they just groping in the dark for an answer to what is the equivalent of a financial nuclear blast! It may be possible to vacuum up all of the fallout, theoretically, but theory and reality don't always fit.
Maybe there is no vacuum big enough to suck all of the Derivatives fallout (heretofore referred to on many sites as the "toxic assets"). After all, with Derivatives trading last year, at almost 4 times the "total" value of "all" stock and bond markets worldwide, (from which they originally "derived" their value) it appears the vacuum required for this job, has never been built before.
Maybe the Keynesians feel they are building it now, with this "massive" flood of digital money! Hopefully, their vacuum won't suck the entire global economy into the abyss.
Actually, since I have done quite well over the past 12 months, I'm feeling pretty good. Maybe I'll go to the black jack table again and try my luck, or maybe roulette this time. No, craps, now that's the ticket.......or maybe......well.......if I took my winnings and put it in the bank for awhile........hmmmm decisions, decisions!
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