Warning: Danger Ahead
EXPANDING GOVERNMENT and THE REGULATORY AGENCIES
Now that the $50 billion Madoff Ponzi debacle is all over the front pages of every newspaper and more importantly, affecting most major charities all over the world, the cry for regulation and Increased oversight has reached crescendo proportions. If there is one lesson that should be obvious, but throughout history has never been learned, is that Making Laws Does Not Prevent Crime. Only by changing the system so that it makes human nature the centerpiece of regulation can we possibly achieve our goals. Have you not noticed that these same types of crimes always come to light only after extensive new regulations lead to a major Economic and Financial breakdowns? Yet after each one, we put a couple of people in jail and pass a few more new laws, yet each new breakdown produces bigger and bigger swindles: Which upon careful examination are due almost for exactly the same reasons as the one before. Will selecting a woman, an insider and political appointee, who was in the upper echelons of the regulatory agencies and who has admitted to having completely missed the unfolding crises, suddenly discover the wisdom to solve the problem any more than appointing another insider, such as Rubin to solve Citi's problems; especially given the fact that they were both major players in creating the problem in the first place. They conspired with Paulson and others to convince President Clinton to reduce the most effective regulations by getting rid of Glass Steagle: Which worked for more than 70 years because its regulations were based on recognizing human mature instead of building Chinese walls that have never worked. It ensured that all the various different financial entities were kept completely separate, thus relying on the self preservation of each separate and distinct company to do its own EXPERT DUE DILLEGENCE. Each one kept a close eye on the various players and their products. That was and is the type of regulation that not only makes sense but more importantly, works. So what are we doing now? Exactly the opposite of what was done in creating Glass Steagle. Just like during the NEW DEAL we are creating larger and more complex (too big to fail companies), such as merging BAM with Countrywide and MER, which are 3 bankrupt companies. If that is not a disaster just waiting to explode, I don't what is. Since when does merging 2, 3 or more sick and dying companies living on death row make for one healthy company? If a company with one culture and one business plan could not succeed, how will the exact same management succeed in merging 3 or more cultures with 3 varying and complex sick business plans be made to work?
REPEATING CYCLES OF DISASTERS
During the 60's, we had the conglomeration wave of synergistic nonsense that was supposed to save $billions by bringing a multitude of companies under the giant umbrella of a conglomerate. It took Mike Millken's invention of junk bonds to get us out of the morass that the USA had gotten itself into. And sure enough 20 years later, we went right back to the 60's merger mania. However this time it was called the private equity and takeover craze and it is about to cause the next shoe to drop for the banks and the economy. Instead of learning from our mistakes, we seem to just go on repeating the exact same ones. I guess Wall Street is only interested in making deals, not in whether they will work-out or not. WILL WE EVER LEARN?
GETTING US OUT OF THE RECESSION
Here too we can't seem to learn from our mistakes. In 1919, Hoover was the Secretary of Commerce and he wanted to institute the exact same policies that he ended up starting in 1929. Even though the crash of 1919 was sharper and deeper than 1929, Harding said NO, "the Banks got themselves into this mess and they can damn well get themselves out of it." That Depression ended up lasting a little over 18 months. Along comes 1929 and Hoover is now the President and begins to institute his 1919 plans for recovery, which is expanded in 1933 by FDR into the New Deal. Exactly the same as what Obama is planning on doing today. Well instead of the Depression lasting 2 years, it lasted 17 years and even a World War could not get us completely out of it. It took the end of WWII (which usually results in Recession), cramaticalloy reduced government spending, the GI Bill, a reduction in taxes and Free Market economics to set the stage for the 20 year boom of 1946 to 1966. It was creeping new Socialist economics policies, followed by Nixon's price and wage controls that then set the stage for today's looming Depression. The only other time I'd ever seen or heard of today's levels of stupidity was in my economic history books, learning about the Great Depression. Once again I ask the question: WILL WE EVER LEARN?
STUPIDITY LOVES COMPANY
In September 2007, Britain's Northern Rock Bank asked the government for an emergency loan. When its customers heard the news, they rushed to the nearest branch of Northern Rock to withdraw their savings. They formed queues around the block. The next day, the government announced it was guaranteeing Northern Rock's deposits, and the panic went away. But then a strange thing happened...suddenly, people started shifting their money from all the other banks in Britain to Northern Rock. The government had intended to make the financial system stronger by shoring up Northern Rock. But it made the financial system weaker by undermining the public's confidence in all other banks. In the end, the government ended up nationalizing the whole system. The same thing happened in Ireland. It was the weakest financial system in the Euro-zone. Then it guaranteed all its deposits. All the money in Europe started flowing into Ireland. This weakened the banking systems in the other European countries and they all had to guarantee all their bank deposits as well.
POLITICS: IRRATIONALITY PERSONIFIED
In the United States, the government is doing everything it can to help homeowners stay in their houses. These people couldn't afford their houses in the first place, but the Socialist mentality pervading government wants to keep them happy. So it won't let the banks foreclose on their properties, and it's making banks reduce the principal on the loans as well as lower rates. Would you lend money to a home buyer knowing the government won't let you take back the house if he doesn't pay you... or that the borrower doesn't have to repay the whole amount of the loan? Not unless you could charge an astronomical interest rate, but the government won't let you do that either. Government regulations cap the interest rates you can charge on a mortgage. The government thinks it's helping unfreeze the credit markets. But it's actually making them worse. It is also extending the massive overhang of unsold and foreclosed homes on the market. Because of the unforeseen, unintended consequences, Government intervention is making the whole system weaker.
THE SAVINGS AND LOANS CRISIS WILL BE REPEATED
Unless you believe that today's ultra low interest rates will last for another 20 or 30 years, by forcing Ginni, Fanni, the banks and the S & L's to borrow short term and lend 4% or 5% 30 year mortgages, you will sooner or later repeat the S&L problem of being forced to pay higher short term rates for their money while holding Long Term low rate mortgages. WILL WE EVER LEARN?
Government intervention robs money that would otherwise be available to businesspeople and entrepreneurs and spends it in places that businesspeople and entrepreneurs would never invest in such as 5% 30 year mortgages with zero equity, uncompetitive car companies or failed banks. Creating unintended consequences that make everyone poorer but more importantly, weakens the entire financial system and what is worse, destroys the overall level of confidence. WILL WE EVER LEARN?
Government stimulus does not stimulate, it stifles. So when you look at the current levels of government intervention all around the world... India, Australia, China, Taiwan, Britain, Europe, and the biggest of all in America... you have to conclude it will lead to the biggest loss of productivity ever. When Politics controls an economy's financial decision-making, no one makes any money. This is why the government interventions haven't had any effect so far. It's also why stock prices will fall to valuations far lower than at normal and possibly to lower that the Bear Market bottoms of 7 decades ago. So I'm not ready to call a bottom in the stock market, I'm sticking to gold and cash.
THE OBVIOUS IS OBVIOUSLY WRONG
In order to make consistent money in the market, you must have the courage to stand alone. "Whatever the crowd does, do the opposite." Every successful Investor and speculator must consider going against the huge crowd piling into U.S. Government Bonds right now and be looking to short the 10 and 30 year Treasuries. Recently the U.S. Treasury auctioned off $5 billion of three-month T-bills for 0.00% demonstrating the Irrational, insatiable demand for Treasury securities over any other investment asset: Rather than take the risk of buying blue-chip stocks at cheap valuations and with fat dividend yields... rather than buying gold, silver, oil or any beaten down commodity at what the experts thinks are fire-sale prices. Investors prefer to lock in a guaranteed negative real rate of return." Reacting To Fear Is Never The Right Thing To Do. The crowd is scared to death. When the crowd is chasing something, it's best to look for an opportunity to FADE the crowd. The Fed's ¾% move to a near zero percent stance was widely hailed on Wall Street, but the euphoria lasted less than 1 day. All the Fed is doing is postponing the inevitable. Japan took its interest rates down to near zero and ended up with 17 years of Recession now turning toward Depression.
Are we, here in the USA, operating on a different set of Economic Laws? In both cases, inflated real estate valuations caused massive losses among the financial institutions. Begetting a wholesale loss of confidence in Japanese banks and has mired their stock market in a 20-year Bear Market. Here in the States, the banks have been slow in revealing all of their troubled assets, but by bailing out the banks, all the Fed has done is reinforce the culture of consequence-free risk taking. We need a new breed of banker. Where is personal responsibility? Why haven't the management teams of these banks been fired and replaced? Why have the exorbitant bonuses that were based on unrealistic "mark to model" phantom profits that have turned into losses, not been reclaimed? Where is the accountability in the system? Will we ever learn?
THE CAR INDUSTRY BAIL-OUT
Over the last 3 months alone we have lost over a million jobs (2 million for the year) without any talk of bailouts. So why are we so set on bailing out a car industry that refuses to take the necessary steps to save themselves? The average UAW worker is payed over $150,000 per year while their competitors average $80,000. So why is the average non union Taxpayer, who earns far less than $150,000, being asked to bail-out the overpaid union workers? Could it be due to political pay-offs?
Look at this guy Madoff. He allegedly robs $50 billion and yet he is out on bail. If a kid robs a liquor store for $500, chances are he doesn't get bail. How does a guy who could potentially have stolen more money than anybody in history get granted bail? With our entire financial system on its knees, how is it that not one single individual has even be charged? The inequality within our justice system has never appeared more glaring. Nobody seems to be able to figure out what happened or why he confessed so quickly. To me the answer is obvious: He is a 70 year old man and by confessing he is trying to take the spotlight and heat off his 2 sons and wife. Also, where is all the money that he stole? He could not possibly have spent it all. If there is a possibility of "grabbing back" monies paid to innocent investors, can they not seize all assets (money, valuables and properties, etc.) owned by his wife and children since they were all accumulated by the use of ill gotten gains? Or is there something we are not seeing. Is he being paid to keep quiet and that is the real reason for his favorable treatment by the courts?
We need fundamental and systematic change to take place or we run the risk of fading into economic obscurity. But how are we going to do this when the New Crop is exactly the same as the old Washington insiders: Is not continuing to do more of the same but on a larger basis yet expecting a different outcome not the definition of insanity?
Should brokerage firms even be allowed to hold customer monies at all or should all customer funds be held by a specialized clearing firm? DEVIDE AND CONQUOR Should we continue to support the incestuous relationships between the various financial entities or what is worse to expand them? Madoff, the Hedge Funds debacles, the dot.com frauds and the latest bank, broker, Insurance excesses have given Capitalism (when in reality it is Socialism, exactly like the 30's) a black eye. It's in times like this that Marxist-based philosophies flourish extending their power. What will happen to our Constitution and what will our Free Country become? Will we ever learn that Government is NEVER the solution!
The coming year, 2009, is going to be much worse for the average American than 2008. Dissatisfaction with our current system could lead to widespread protests, riots and violence which, in turn, could lead to a tremendous loss of our personal freedoms as we fall into a Dictatorship Style Socialism. Every American should be outraged by this atrocious stewardship of our nation's wealth. Our future has been looted by a select moneyed few who are completely free of the consequences that so many millions of others will have to go through. Did any of you ever ask where the $900 million that was spent on the presidential campaign came from and what do they expect to get in return? To these politicians from either party, we are like sheep to be sheared and when necessary, led to the slaughter. And make no mistake, it is the working people of this country who will be paying the tab for these so-called Masters of the Universe. The stark reality of the current power grab and the degree of naked greed on such a grand scale with complete disregard for others is a prelude to the financial genocide of our nation's health. Unfortunately it is creeping Socialism that breeds cronyism and anarchy, which always leads to outrageous theft that a truly Capitalist system would not tolerate. However it will be Capitalism that will get the blame, which is why I am calling for a 20 year Depression as our country turns more and more to French style Socialism lead by our new FDR. Keynesian Messiah.
WHAT IS THE SCORE?
The Treasury reported a 2008 Federal Deficit of $1.009 trillion, increasing to $5.1 trillion when Social Security/Medicare obligations are included. Instead of the much publicized "official" 2008 federal deficit of $454.8 billion, the U.S. Treasury reported (December 15th) that the 2008 deficit was really $1.009 trillion, versus $275.5 billion in 2007. The new numbers still do not account for the annual change in the present value of unfunded Social Security and Medicare liabilities. Counting those changes, as a corporation would for its unfunded pension and healthcare liabilities, the 2008 annual deficit is really $5.1 trillion, versus $1.2 trillion of 2007.
Total U.S. Government Obligations $66 trillion.
Gross Federal debt outstanding plus the net present value of unfunded liabilities comes in at $66 trillion, roughly 4.6 times the level of reported U.S. GDP, and greater than the total World GDP. These numbers, are in my estimation unsustainable, especially since they are increasing rapidly, not only for fiscal 2009 but for the foreseeable future as far as the eye can see and eventually must doom the U.S. dollar to hyperinflation and the politicians from both parties refuse to even discuss the on rushing crisis, as I have been reporting regularly, like a broken record, for quite some time now.
It has been brought to my attention by a number of my readers that Martin Weiss, a long time Doom and Gloom super Bear and Gold Bug has recently changed his mind and recommended selling Gold and buying Treasuries. As you all know, I never comment on other people's work and I will not comment this time either except to assure you that I am continually reevaluating my positions on all things all the time. You are all witness to the fact that I am very quick to admit when I make a mistake and change my mind. Not only that, but every time I come across what I consider to be a great Idea by someone else, I quickly incorporate it into my own thinking. It was Aristotle who said "I know that I don't know," who am I to argue. After reviewing my positions, projections and timing, let me assure you that as of the time of this writing, I stand by my opinions and projections and will let my track record speak for itself. However should the situation change I assure you that I will let you know almost as soon as I know and will take great pride in admitting that even though I was wrong I am able to correct my mistakes quickly.
Due to the fact that it is, for me anyway, impossible to fully comprehend or even estimate the eventual degree of government irrationality and stupidity, I cannot pinpoint exactly when Gold and Silver and their stocks will BLAST OFF. However, they now seem to be well on their way. Although the rally was, as expected, led by the majors, percentage wise the juniors have far outpaced Gold and the majors. But who cares as long as we are making money. Has everybody noticed that what in my opinion is one of the best ways to play Silver: SLW going from $2.50 to $6.00?
ELLIOTT WAVE GOLD
It looks like GLD has completed a near perfect 5 wave minor Wave I and a .38% pull-back to the $78-$80 level, is now underway, expected and desirable in order to give you a good entry point. Remember we do not want a parabolic rise any time soon, as that would mark the beginning of the end. Keep the Faith. We have another 9 to 12 years to go before this Golden Bull meets its end $6,250. SO HANG ON TO YOUR CORE POSITIONS FOR DEAR LIFE and continue to accumulate on weakness. For the more conservative crowd: You can buy the majors and write one month in the money options and earn 8% to 10% a month. Not to bad, AYE?
THE STOCK MARKET: I don't have much to say that is new except that the market is behaving almost exactly as expected and explained in my last two issues. We are in major Wave B of the BEAR MARKET with as long as 2 or 3 more months to go before Wave B is over and the devastating Wave C crash resumes. Continue to build up your cash positions. If you insist on action: Buy stocks only into sell offs - DO NOT chase rallies. REMEMBER to always use STOPS. DO NOT LOSE MORE THAN 10% on any position. You must not get caught sitting on losses when this market turns down and the best shorting opportunities present themselves.
GOOD LUCK AND GOD BLESS
Aubie Baltin has spent his career identifying major trends in the markets - and helping others to profit handsomely from them. He identifies the trends that are happening today; trends that most analysts and investors notice only after they have already been well established and the majority of the easy profits have been made. In his newsletter, "UNCOMMON COMMON SENSE", Aubie has the unique ability to uncover changes to the major trends before they even begin and then presents a goldmine of specific, actionable information that will help you profit even during the worst of times. Make Aubie work for you, by subscribing to UNCOMMON COMMON SENSE at the still low, discounted Holiday Rate.
I am offering a Holliday Special: A two year subscription for only $339. The one year subscription is still a reasonable $199 until the end of the year at which time prices will increase to $269.00 and $469: Don't forget to: Extend your subscription now, before the January price increase.
UNCOMMON COMMON SENSE
December 31, 2008
Aubie Baltin CFA, CTA, CFP, PhD.
2078 Bonisle Circle
Palm Beach Gardens FL. 33418