Archive - Sep 2011

BOTTOM LINE: The President’s proposal is larger than expected, with spending proposals and tax cuts both somewhat greater than expected. This proposal does not imply a significant shift in the fiscal restraint in 2012, but it is consistent with our expectation that the payroll tax cut will be extended, and the fact that some of the new proposals involve additional tax cuts increases the probability that Congress will enact them.

I didn’t coin the phrase “Greater Depression,” that was Doug Casey, my partner; and I think Doug had it exactly right. I think, you know, there has been so much of a, as I’ve said, this sort of rising tide of bad policy and extreme spending and a takeover of the economy – and not just the US economy, but all of the economies by these governments, the nation-states – that things have reached the point, people tend to think that things are going to stay the same and continue as they are, but they don’t. Sooner or later, history shows over and over again, things break, systems break, and I think we are very close to that. There is never a good time to fix this kind of a problem. So politicians will always make the choice to not actually address the problem, but rather to leave it to the next person’s watch. This isn’t – this would be a horrible time, absolutely a horrible time to fix the problems that face the American economy. Slashing the deficit, slashing the debt, slashing the government spending at this point would have catastrophic consequences to the average person. There would be riots in the street; but if you don’t fix it now, when do you fix it? Okay, well, do you fix it in the next year? No. Do you fix it the year after? The government will do whatever it can to keep pushing this down the road, but they can’t push it down the road much further.

So, will this jobs bill do much? I don't see how. Employers get a tax break, but that will likely be used to increase profits, because they remain uncertain of what happens when the breaks end. No new jobs, and limited new spending. For the employees - he said an average of $1,500 next year extra in their pocket. Interesting but when he talks about cutting medicare and social security in the same speech, how much of that will be spent? I think a lot of that will go into savings to offset future needs. People making 50k a year aren't so dumb to just take this money and spend it, when they see future benefits getting stripped away. The $4,000 tax credit for hiring new employees covers about 14 weeks at minimum wage (the sort of job this economy has been able to generate). Maybe we will see a spike in layoffs ahead of that since it might be a good time to get rid of employees on the fringe, when you can get a free look at his replacement, courtesy of the government.

A glitch in the sinusoid matrix?

... Keynesianism is already having an effect after all 1.4 million customers of SDGE are currently without power. We expect the president to announce he will rebuild all the lost electricity any minute now. We also expect half the S&P will blame their missed earnings on the "Great SoCal blackout of 2011"

What the hell: this is no longer even a Banana republic. We are now officially an Onion republic. So let's party like it's an Onion republic.

Cliff notes summary from Bloomberg:

• OBAMA SEEKS TO CUT IN HALF PAYROLL TAX FOR WORKERS, SMALL FIRMS
  
• OBAMA PROPOSES $447 BILLION PACKAGE TO SPUR JOB GROWTH
  
• OBAMA PROPOSES $105 BILLION IN INFRASTRUCTURE SPENDING
  
• OBAMA BACKS USING JOBLESS AID FOR ON JOB TRAINING PROGRAMS
  
• EXTENDED UNEMPLOYMENT AID OF $62 BILLION IN OBAMA PLAN
  
• NO PLAN FOR REPATRIATING OVERSEAS PROFITS IN OBAMA PROPOSAL
  
• STATE AID IN OBAMA PLAN $35 BILLION FOR TEACHERS, POLICE FIRE
  
• OBAMA CALLS FOR MODEST ADJUSTMENTS TO MEDICARE, MEDICAID
  
• OBAMA SAYS `VAST MAJORITY' OF CEOS WILLING TO PAY MORE TAXES
  
• OBAMA CALLS FOR `REFORMING' U.S. TAX CODE 7:10
  
• INFRASTRUCTURE PLAN WOULD MODERNIZE 35,000 SCHOOLS, OBAMA SAYS

“As we know from the intelligence gathered from the OBL raid, AQ has shown an interest in important dates and anniversaries, such as 9/11. In this instance, it’s accurate that there is specific, credible but unconfirmed threat information. As we always do before important dates like the anniversary of 9/11, we will undoubtedly get more reporting in the coming days. Sometimes this reporting is credible and warrants intense focus, other times it lacks credibility and is highly unlikely to be reflective of real plots underway. Regardless, we take all threat reporting seriously, and we have taken, and will continue to take all steps necessary to mitigate any threats that arise. We continue to ask the American people to remain vigilant as we head into the weekend.”

For all your heartfelt, congratulatory, nay laudatory remarks vis-a-vis the TOTUS, here is the webcast that will allow you to comment as you toast the president who certainly means well, even if he still has to be acquainted with an abacus. That's ok though. "Everything will be paid for"... Somehow. Even the post office. Just hike that debt ceiling. After all who needs taxes when the Fed will soon monetize the entire deficit anyway. In the meantime, as a reminder that Dubya may be gone but not forgotten, we get this from Bloomberg: DEPT OF HOMELAND SECURITY CITES 'SPECIFIC, CREDIBLE' THREAT.

The latest Keynesian abortion is here, and it has a name: the American Jobs Act. We are confused why this particular abortion does not have a version number: like 6.66, or AJA "Blue Screen of Death" Vista? Or perhaps the administration thinks the nation is too hungry and stupid to remember the Tax Cut Prevention Act of 2010, which crashed and burned within 2 months of its laudatory launch in December 2010, to do, yes, precisely what the AJA will try to do... all over again.

It is hard to believe that the last time the US had breached its debt ceiling was a whopping one month ago. Courtesy of much toil, tears and televized theater (not to mention fake compromises), the Obama administration managed to get an accordion-feature extension of the debt-ceiling-cum-target, whereby it is currently at $14.694 trillion, and can be extended in $500 billion increments, for a total of $1.5 trillion provided congress and senate do not vote down such an expansion. The reason we bring this up is because as the data below demonstrates, the US Treasury will breach its brand new debt ceiling... on Monday.

In my opinion, the Swiss and Brazilian moves signaled the true beginning of the global currency wars. The depreciation race to the bottom has begun. Trade wars will be next. This is just getting started. Once FX interventions fail, governments suffering from falling exports will attempt to protect local champions via protective taxes, tariffs and the limiting of certain imports. Affected governments and industries will retaliate for their own loss of exports and so on and so forth. Welcome to the currency wars....Bottom line: now is a great time to get out of govt paper and many miles away from the large US and European banks. I am a broken record on this but you should own gold and silver miners, fertilizer companies, oil companies and water companies. Some technology stocks could make sense and reasonable exposure to Asia and Latam. Corporate bonds of companies providing any of the products listed above (gold/silver, fertilizers, oil and water) makes a ton of sense. I would avoid the large multi-nationals here as I think trade wars are coming and their cash flows from foreign operations are about to come under fire.

The last time Texas Instruments slashed its top and bottom line outlook was a whopping 4 months ago. Which means it is time for a new trimming of forecasts. Sure enough...

Gold, silver, and the dollar performed well today and despite some early strength from equities, risk-on-related assets were set to pull equities lower calling the bluff of marginally better trade figures. Of course, with Swissy off the table from a safe-haven perspective (losing 2% against the USD today), gold benefited from the anxiety that Bernanke's 'shrug' provided. Unless the game-theoretic (bargaining) response from Republicans over whatever Obama proposes tonight is ignored, we suspect selling pressure will continue in equities as they adjust to life on their own for a bit.