Archive - Aug 2010 - Blog entry

Quietly and with little fanfare, Gold has made a MAJOR change in its status. The precious metal is largely viewed as THE anti-paper money play by investors. This all changed in November 2009. What happened then? The Sovereign Debt Crisis began in earnest with Dubai asking for a six-month extension on $60 billion worth of debt.

At this point, Gold broke away from its traditional relationship to the US Dollar. Indeed, since then Gold has actually moved in tandem with the US Dollar. The correlation between the two is not perfect, but generally Gold and the Dollar have moved together both to the upside as well as the downside.

So what can we glean from this Crisis and the psychology surrounding it? Well, we can see that Systemic Crises follow a clear pattern when it comes to social psychology and how people react. That pattern is:

1) A minor player goes under and people shrug it off for a few months
2) A larger issue arises requiring a vast sum of money and people begin catching on that something LARGER is at stake
3) Suddenly everything comes unhinged and the entire world panics

Today, no more than two years after this debacle, we are witnessing the EXACT same pattern play out on a sovereign basis.

Faber and Schiff on CNBC talked aobut the U.S. Treasury bubble trouble

Hedge fund honcho, Kyle Bass, says that time has run out for Japan. This year, the Ministry of Finance will see ¥40 trillion in receivables against ¥97 trillion in spending. The tipping point is close, and when it hits, Japan will have to borrow from abroad in size. Foreign investors subject to tougher investing criteria than domestic institutions, won’t take it. Both the JGB market and the yen can only collapse in the face of these developments.

As if the Fannie and Freddie debacle wasn't enough, two Fed economists are now proposing that the government insure the entire ABS market. Of course they have a foolproof scheme that won't repeat the old mistakes. This is not speculation. It is a serious proposal that is being considered as part of the discussions about the future of the GSEs

According to Laurence Kotlikoff, Social Security is broke. He estimates its fiscal gap is $16 trillion. If you factor the trillion dollar gap of underfunded state plans, the US Pension Ponzi scheme is a lot worse. What can be done to address the looming retirement crisis?

1.4 million homes need to be taken off the market for at least 5 more years to resolve housing's near term oversupply.

I love Barron’s. I really do. I read it from cover to cover, and I truly believe it is one of the few business publications that knows the difference between a good company and a good stock. Now that I’ve sugared it up, let me tell you this: its article on Medtronic is wrong!

Someone wasn't pleased with Tyler's "incorrect rants" on TRS...

With photographs ...

The Hindenburg Omen was triggered again last week. But before everyone goes running for the exit, the probability of a major stock market crash was only 24%, and it would also help to take a closer look at the significance of the Hindenburg Omen itself.

Sprint's ultra high speed 4G cellular service is live in NYC! This rapid deployment of next generation technology combined with the rapid deployment of Android (more next generation technology) puts the competition at a distinct disadvantage. What competition, you ask???

The Department of Education says the loan repayment rate at some for profit schools is as low as 25%, and that it would disqualify these schools for future student loans. That amounts to the taking away the punch bowel from a highly leveraged, overpriced industry, a hedge fund manager’s dream come true. Advising students to lie on their loan applications does not turn out to have been such a great business plan. (APOL), (DV), (CPLA), (COCO)

The latest numbers on housing and jobs show that the underlying causes that crashed the economy have not been resolved and the problems that the Feds tried to paper over are re-emerging.

If forced liquidation becomes a pattern among US (and global) pension funds, watch out, the pension tsunami will have far reaching effects which will make the whole AIG fiasco look like a walk in the park...