Investment Rarities Incorporated
History |  Q & A  |  Endorsements  |  Portfolios  | Flatware | Gold Coins  |  Silver Coins  |  Contact |  Home

Products

Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

..Read More »

The Best of Jim Cook Archive

 
Best of Bill Buckler
January 14, 2010
archive print

When “Failure” Becomes Too Big To Contemplate:

On January 14, 2000, almost exactly ten years ago, the Dow closed for the day at 11722.98 points. It did not regain that level until October 2006. In the intervening period of nearly seven years, the last vestige of fiscal or monetary sanity was jettisoned. US official interest rates were hauled down by main force by the Fed throughout 2001, the sequence accelerating in the grim aftermath of 9/11. Federal budget deficits, which had been all but eliminated in fiscal 2000, soared back upwards. Financial leverage blew out to levels never before so much as contemplated. New financial instruments were invented and blown up into multi $US TRILLION behemoths. Program (read computer) trading took over. Asset pricing became imaginary as the “derivatives” behemoth was fuelled without ever having submitted to any type of market trading.

Then, in mid-2007, the “GFC” (Global Financial Crisis) hit. In the latter half of 2008 – EVERYTHING collapsed. By early March 2009, global financial apocalypse loomed. As a last gasp, the Bank of England (BoE) and the Fed announced in March 2009 that they were going to save the (financial) world by directly buying the debt paper their governments must sell in order to function. A failure by these governments to do so was deemed too big to contemplate. Instead, it was postponed.

We enter 2010 on a note of rising optimism from official circles - the most dangerous situation there is.

The First Official Line:
On December 16, Time magazine picked their “person”- just in case it wasn’t a man - of the year for 2009. As it happens, it was a man. He was, as you probably know, Fed Chairman Ben Bernanke. Time magazine has been around for a very long (ahem) time. They have a very keen nose for sniffing the political and especially, the political establishment wind. Given their track record over the decades, they pretty well had to pick Mr Bernanke. Mr Bernanke’s first four-year term as Fed Chairman ends on January 31. Before that, he faces confirmation hearings in the Senate. While these are normally a formality once a Fed Chairman has received his President’s nod (as Mr Bernanke has), these hearings may be a bit more torrid than usual. Time has done their bit to smooth the waters.

The Second Official Line:
On January 5, after the first trading day of the new year in which ALL categories of markets - except one- went up, CNNMoney.com published an online article titled “2010: Year of the Dollar?”. As it happened, the trade-weighted $US Index (USDX) bucked the trend by falling 0.39 points on January 4. CNNMoney hasn’t been around as long as has Time magazine so their track record is not as well established. But if this headline and story is any indication, they’re working on it. In 2009, concern grew throughout the year about Mr Bernanke’s “handling” of the US economy and especially the financial system. Up until early December, the US Dollar was steadily falling against all other major currencies -including Gold (and Silver). Then, attention was forcibly deflected with the “sudden” Dubai debt moratorium and the ratings agencies’ actions on Greece and, to a lesser extent, Spain and Portugal.
Over the last four weeks of December, the US Dollar recovered against all other major currencies – most particularly Gold (and Silver). But the official explanation for this had nothing to do with Dubai or the sudden bout of public alarm by the ratings agencies. According to the official explanation, including the one put forward by CNNMoney, the US Dollar turnaround was an indication that investors are getting out of “trading mode” and starting to focus once more on what is called “long-term fundamentals”. How’s that again??

The Official “Fundamentals”:
The “official” explanation for the rises and falls of the US Dollar over the period since the great global stock market rebound began in March 2009 is that the strength of the US currency is inversely proportional to the world’s appetite for “risk”. As that appetite increases, investors are prone to start chasing capital gains in such areas as stock markets, commodities and non $US currencies and debt paper.

As the appetite decreases, investors retreat to such “rock solid” assets as US Dollars and $US
denominated debt paper. This is a replay of the official reason given for the great US Dollar bounce of late 2008 - early 2009. What caused that, officially, was a retreat away from “markets” towards “safety”. In reality, as is usually the case with official explanations, the exact opposite is the true state of affairs. What caused the US Dollar rebound which peaked as global stock markets bottomed in March 2009 was indeed a “flight to safety”, but it was a flight to the safety of cutting down $US denominated debt to the greatest extent possible. The rush into US Dollars was a rush to meet margin calls and to minimise debt denominated in US Dollars. As The Privateer pointed out at the time and has emphasised several times since - it was a huge deleveraging rally, partly forced but mostly voluntary.

What choked off the $US rally and ignited the global stock market rally was the decision by the BoE and the Fed to monetise their nations’ debt. Officially, this took the banks and the governments which control them off the hook. We are now nine months into the last resort of the “lenders of last resort.”

 “We’re Screwed”:
Among other things, The Privateer prides itself on being an antidote to the “official” line of drivel put out by governments and faithfully echoed by their sycophants in the financial system and the financial media. We are, of course, by no means alone in this endeavour. One of our heroes is a man called John Williams who runs a website called shadowstats.com. The headline above is an inelegant but accurate synopsis of Mr Williams’ views on the financial future of the US as gleaned from a recent US newspaper interview.

Mr Williams’ methods are simple. He re-calculates the major government statistics - on GDP, CPI, government debt levels, employment, money supply growth etc. He does so using the official formulas of two to three decades ago, before these formulas were altered to give an increasingly false picture of the US economy. Mr Williams’ results show without a doubt that the US faces a WHOPPER of a depression with a well and truly bankrupt government and totally unsustainable debt at all levels.

Here’s a quote from Mr Williams. “The government does put out financial statements usually in
December using generally accepted accounting principles where unfunded liabilities like Medicare andSocial Security are included in the same way as corporations account for their pension liabilities. In 2008, ...the one year deficit was $US 5.1 TRILLION ...instead of the $US 450 Billion officially reported.” If the US government reported its balance sheet in the same manner as it requires every other economicentity in the US to report theirs, its deficit in 2008 would have been 11.33 times the size of the officialreport. We do not yet know what the same figure was in 2009. As reported on Mr Williams’ site, theequivalent report for 2009 has been “delayed”. All we know is that the official deficit reported by the USTreasury for 2009 was more than three times as big as the official 2008 number.

As 2010 rolls forward, the more the US government (and all the other major governments in the world) talk about winding down stimulus packages, capping budget deficits and even starting on the process of actually raising interest rates, the more desperately they will be borrowing and spending to keep a semblance of “normalcy” in front of their ever more nervous populace.


Ó 2009 – The Privateer

http://www.the-privateer.com

capt@the-privateer.com

(reproduced with permission)

SUBSCRIPTIONS:

Delivery via email

Trial: 5 issues (once only)

Six-Month: 12 issues

Annual: 25 issues

Two-Year: 50 issues

Subscribe at www.the-privateer.com/sub.html