Am personally not a huge fan of Bill Gross of Pimco, but he captures our problem pretty well. If we suppose that future entitlement liabilities were in fact fully funded via the infamous 'lockbox' by borrowing, then the interest expense on the $75 trillion in total debt required to fund these liabilities would be about $2.6 trillion. We currently pay about $250 billion in interest expense.
As such, the total debt burden of the US approaches 500% of GDP. This is higher than Greece.
Gross posits that absent large entitlement cuts (which the federal government seems reluctant to do), then the US is likely to default on its debt. Rather than a 'conventional' default, which entails outright failure to uphold contractual obligations, the US would be more likely to default by printing money to pay the bills (i.e., inflation).
Perhaps the strength of gold can be explained in part by the possibility that increasing numbers of investors are factoring this scenario into their asset allocation decisions.
position in gold
Sunday, April 3, 2011
Saturday, April 2, 2011
Strong Gold Chart
While catching up on some chart gazing, the gold chart stood out right away. Multiple reverse head and shoulder patterns are evident, as demand seems to be absorbing any price weakness.
During a break at the RISE conference, I noticed early morning weakness. My limit order never got filled as price didn't come back in later in the day. Will be looking for to add to my position here early in the week.
position in GLD
During a break at the RISE conference, I noticed early morning weakness. My limit order never got filled as price didn't come back in later in the day. Will be looking for to add to my position here early in the week.
position in GLD
Thursday, March 31, 2011
Fed Bailout Records Released
Quick news bite in the midst of the RISE conference (which is very cool so far). Under court order, the Federal Reserve released loan records of those banks who tapped the discount window during the credit meltdown. The Fed extended $3.3 trillion (yep) to financial institutions during the crisis.
Those in support of bailout activities argue that releasing such a list will make it harder for the Fed to serve as lender of last resort because banks may be less reluctant to seek emergency loans knowing that their identities will be known. I wouldn't count on it...
Those who believe in transparency of government agencies, of course, believe that such information is owed the public.
position in SPX
Those in support of bailout activities argue that releasing such a list will make it harder for the Fed to serve as lender of last resort because banks may be less reluctant to seek emergency loans knowing that their identities will be known. I wouldn't count on it...
Those who believe in transparency of government agencies, of course, believe that such information is owed the public.
position in SPX
Wednesday, March 30, 2011
Strong Trannies
On the verge of breaking down two weeks ago, the Trannies have lifted all the way back to previous highs.
Should the Trannies decisively break thru resistence here, the bulls will collect some Dow Theory love.
position in SPX
Should the Trannies decisively break thru resistence here, the bulls will collect some Dow Theory love.
position in SPX
Tuesday, March 29, 2011
End of QE2?
The Fed's QE2 program is slated to end in a couple of months. In the past week, various Fed officials have been discussing the program's end--perhaps to 'prepare' the market for the termination of Fed money printing.
One big question is whether the Fed will have the fortitude to end the stimulus program. After all, Fed chairman Ben Bernanke has gone on record that QE2 has helped firm the US economic recovery and lift stock prices (although he denies any culpability with respect to the increse in commodity prices).
Many market participants are wondering whether stock prices can stay elevated without such 'help' by the Fed.
Last week I heard an interesting theory that the Fed will in fact do a QE3 program. But it won't be able to find broad support for it until QE2 ends and stock prices (and perhaps economic activity) come down. If markets tank (as what occured after QE1 and before QE2), then it will become clear to others that another QE program will be necessary to keep economies and markets afloat.
In some other domain, this line of thinking would be considered preposterous. But given the bizaare situations that we've witnessed over the past couple of years, I would not dismiss such a scenario.
Again, the proposed scenario is: QE2 ends --> stock markets decline --> the Fed gets the justification for QE3
Life (or at least life in financial markets) is sometimes stranger than fiction.
position in SH
One big question is whether the Fed will have the fortitude to end the stimulus program. After all, Fed chairman Ben Bernanke has gone on record that QE2 has helped firm the US economic recovery and lift stock prices (although he denies any culpability with respect to the increse in commodity prices).
Many market participants are wondering whether stock prices can stay elevated without such 'help' by the Fed.
Last week I heard an interesting theory that the Fed will in fact do a QE3 program. But it won't be able to find broad support for it until QE2 ends and stock prices (and perhaps economic activity) come down. If markets tank (as what occured after QE1 and before QE2), then it will become clear to others that another QE program will be necessary to keep economies and markets afloat.
In some other domain, this line of thinking would be considered preposterous. But given the bizaare situations that we've witnessed over the past couple of years, I would not dismiss such a scenario.
Again, the proposed scenario is: QE2 ends --> stock markets decline --> the Fed gets the justification for QE3
Life (or at least life in financial markets) is sometimes stranger than fiction.
position in SH
Monday, March 28, 2011
EU Debt Problem Revisited
The sovereign debt crisis in the European Union has been taking a back seat to problems in Japan and the Middle East. While attention has been elsewhere, however, sovereign credit spreads in Portugal, Spain, and elsewhere have continued to widen.
Today Ireland said it wants senior bond holders of Irish banks take a hit as part of any debt restructuring plan. Seems reasonable. After all, in an unhampered market, these bondholders would take a hit, up to and including total loss of their investment if Irish banks went bankrupt.
But other EU countries oppose the idea, claiming that smacking bondholders in Ireland might cause a contagion of debt selling in other countries by skittish investors.
Europe faces an intractable problem with 'domino effect' potential. While other issues around the world currently seem more urgent, investors ignore the increasingly volatile situation in the EU at their own peril.
position in SPX
Today Ireland said it wants senior bond holders of Irish banks take a hit as part of any debt restructuring plan. Seems reasonable. After all, in an unhampered market, these bondholders would take a hit, up to and including total loss of their investment if Irish banks went bankrupt.
But other EU countries oppose the idea, claiming that smacking bondholders in Ireland might cause a contagion of debt selling in other countries by skittish investors.
Europe faces an intractable problem with 'domino effect' potential. While other issues around the world currently seem more urgent, investors ignore the increasingly volatile situation in the EU at their own peril.
position in SPX
Sunday, March 27, 2011
Monetizing the Debt
Two years ago, politicians and media were quick to recognize the ponzi scheme run by Bernie Madoff at the expense of his investors.
Today, however, a much larger Ponzi scheme is being run by the US government at the expense of US citizens. The US Treasury sells bonds to banks. The banks then turn around and sells those bonds to the Federal Reserve. The Fed buys those bonds w/ freshly printed dollars.
This is sometimes referred to as 'monetizing the debt.' But it is a Ponzi scheme, pure and simple. And this scheme is built with an inflationary engine.
btw, nice work for those banks that serve as middlemen, as they are privy to free money for brokering the pyramid.
You may or may not agree with this policy. But as investors, you need to make sure you understand the financial and economic implications.
no positions
Today, however, a much larger Ponzi scheme is being run by the US government at the expense of US citizens. The US Treasury sells bonds to banks. The banks then turn around and sells those bonds to the Federal Reserve. The Fed buys those bonds w/ freshly printed dollars.
This is sometimes referred to as 'monetizing the debt.' But it is a Ponzi scheme, pure and simple. And this scheme is built with an inflationary engine.
btw, nice work for those banks that serve as middlemen, as they are privy to free money for brokering the pyramid.
You may or may not agree with this policy. But as investors, you need to make sure you understand the financial and economic implications.
no positions
Subscribe to:
Posts (Atom)