Weekly Articles 2010

Automatons with business suits swinging black boxes,
Sequestering the blueprints of daily life
Contented, free of care, they rejoice in morning ritual
As they file like drone ant colonies to their office in the sky

I don’t ask questions, don’t promote demonstration,
Don’t look for new consensus, don’t stray from constitution
If I pierce the complexity I won’t find salvation
Just the bald and overt truth
Of the evil and deception

There is an inner logic,
And we’re taught to stay far from it
It is simple and elegant,
But it’s cruel and antithetic
And there’s no effort to reveal it

Graduated mentors stroll in marbled brick porticos
in sagacious dialog they despise their average ways
betraying pomp and discipline, they mold their institution
Where they practice exclusion on the masses every day

Decorated warriors drill harmless kids on pavement
Stimulating tyranny under red alert
Protecting the opulent and staging moral standard
They expect redemption of character and self-growth
– Bad Religion, Inner Logic (1994)

If This What Deflation Looks Like…
Then I really, really, REALLY don’t want to ever see what inflation looks like.  Despite the title of this piece I do not wish to engage in some inane debate about whether deflation or inflation is the risk.  I have made it clear for two years now that we are in a highly deflationary environment occurring within the backdrop of a purely fiat monetary system that is governed by “experts” whose ideological framework is based upon the false economic religion known as Keynesianism.  So for people that are actually trying to preserve their wealth an intellectual debate on inflation or deflation might be interesting but is not particularly productive.  I can understand why many in the financial services industry see the greatest risk to be deflation.  Why?  Because for them it is.  Stocks, bonds and real estate will perform horribly in the environment that we have.  Even if they go up for periods, over time they will not make up for the cost of living increases in the things that we need.  This is the major disconnect happening right now between “Wall Street” and “Main Street.”  Wall Street has been coddled and pampered for two and a half decades by the natural forces of a secular bull market in financial assets as well as the Federal Reserve Chairman and a D.C. establishment that refuses to allow the free market to function.  So when a money manager of financial assets looks into his future and sees deflation he is correct.  When the majority of “Main Street” looks into their future they also correctly see inflation.  That is because when you have 40 million Americans on food stamps I am sorry but they have much bigger issues to deal with than the S&P500.  So the world we are looking at is where a BLT sandwich could cost $12 and home prices drop another 20%.  Investment professionals have a very hard time getting the heads around this concept for some reason but that is the reality we are looking at.  Goods that are wanted around the world will rise in price in debased dollars while non-essential items deflate.  The Chinese want pork but they could care less about some McMansion in Ohio.  There is nothing anyone can do to change this.  It is a natural cycle as simple, powerful and inevitable as any cycle in nature.  If it must happen, it will happen.

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Action alone is the province, never the fruits thereof.
Let not thy motive be the fruit of action, nor shouldst thou desire to avoid action.
– The Bhagavad Gita

Renunciation means absence of hankering after fruit.
As a matter of fact he who renounces reaps a thousandfold.
He who is ever brooding over result often loses nerve in the performance of his duty.
He becomes impatient and then gives vent to anger and begins to do unworthy things;
He jumps from action to action, never remaining faithful to any.
– Mahatma Ghandi

A Merging of the “Left” and the “Right”
During my most recent interview with Max Keiser I briefly introduced a concept that I referred to as “conscious capitalism” and I promised to expound on this idea in future writings.  When I look around me I see a lot of encouraging signs but I also see a political, military and industrial establishment that is fighting with all its might to squash what I think could be a very powerful merging of forces on both the motivated and moral “left” and “right” sides of the political spectrum.  As I have mentioned previously I tend to be libertarian philosophically yet I find myself in agreement with many of those who the mainstream media tells me are on the “other side.”  Side issues like who is “racist” and the ground zero mosque are used to emotionally separate us and we must not give into such tactics.  I think the most important thing for people that really want to change things for the better and lessen the stranglehold of the current corrupt and dependency/warfare model that is the United States of America should do two things.  First, find the issues that we can agree upon and secondly as Ghandi instructed us “be the change that you want to see in the world” and spread this idea to everyone you come in contact with.  We must remember that we have the ultimate power as individuals and consumers and at the end of the day this nasty little system we’ve got going survives based on our compliance whether we want to admit that or not.

What are the Main Issues we can Agree On?

End the Fed.  I think the first  issue to be dealt with is the Federal Reserve.  Either it needs to be castrated or ended.  As I have said before I think we are already on the road to achieving this end but we can’t give up now.  The keys to ending the Fed in its current form are several fold.  The first is to educate the masses on how and when the Fed was formed, what the Fed is, and finally who it ultimately answers to.  Secondly, we need to support Congressmen like Ron Paul in their bi-partisan efforts to “Audit the Fed” or audit the gold reserves in Fort Knox.  Despite having had considerable support from Congressional Democrats the bill was not passed as Mr. Paul intended and indeed the Fed was given more powers in that laughing stock of a Financial Reform Bill.  Many will view this as a setback and in some ways it was; however, it was also a victory in that it served to “awaken” a growing percentage of the citizenry to how things work and to recognize that the Congress does not listen to the will of the people but rather protects the corrupt establishment at all costs.  Having the power to create money and credit out of thin air, the Federal Reserve is the ultimate tool of the establishment and the noose around the necks of us serfs.  When we have forced the Fed to respond to our inquiries their response in all cases is to grab further power and fight to avoid any disclosures of the actions they have taken in the shadows.  Whereas truth can always shine through even the darkest night, lies must be compounded upon themselves indefinitely to maintain themselves.  To quote Ghandi yet again:  “The wicked can prevail only when they number multitudes, but goodness will rule when embodied to perfection even in one person.”  This is a man who was able to boot the most powerful empire the world has ever seen using nonviolent methods.  I think we can learn a lot from him.

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There is no distinctly American criminal class – except Congress.

Patriotism is supporting your country all the time, and your government when it deserves it.

All you need is ignorance and confidence and the success is sure.

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.

There are lies, damned lies and statistics.

Courage is resistance to fear, mastery of fear, not absence of fear.

Laws control the lesser man… Right conduct controls the greater one.
– All quotes by Mark Twain

We Need Real Confidence to Return, Not Confidence in a Ponzi Scheme
Last week I pointed out that what I got from Banana Ben’s speech in Jackson Hole was that he realized any major public statement of interference in markets was too risky at this point following his announcement at the last meeting to keep the balance sheet steady by reinvesting MBS proceeds into treasury securities.  The operative word in this sentence being “public.”  Anyone that believes this means the Fed and government will just take a back seat and do nothing behind the scenes is deluding themselves.  Washington D.C. and the Fed still fail to comprehend how to increase standards of living in the real world, rather they remain completely addicted to the short-term buzz of printed money heroin as it flows through the house of cards they have created.  They also think that the only thing that really matters in an economy is “confidence.”  As Madoff can attest to, that is indeed the case when you are running a ponzi scheme and since the U.S. government is basically that I can understand where they are coming from.

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A government always finds itself obliged to resort to inflationary measures when it cannot negotiate loans and dare not levy taxes, because it has reason to fear that it will forfeit approval of the policy it is following if it reveals too soon the financial and general economic consequences of that policy. Thus inflation becomes the most important psychological resource of any economic policy whose consequences have to be concealed; and so in this sense it can be called an instrument of unpopular, that is, of antidemocratic policy, since by misleading public opinion it makes possible the continued existence of a system of government that would have no hope of the consent of the people if the circumstances were clearly laid before them. That is the political function of inflation. When governments do not think it necessary to accommodate their expenditure and arrogate to themselves the right of making up the deficit by issuing notes, their ideology is merely a disguised absolutism.
– Ludwig von Mises

How Wall Street Died
Let me take you back to the fall of 1999.  I was a senior in college without a clue what I wanted to do with my life.  Wall Street was in a boom and seemed exciting.  I had always loved the financial markets since I had first discovered them years earlier; however, I wasn’t convinced this was the profession I wanted.  I had majored in Economics at school for practical purposes but I found almost all of the courses to be extraordinarily uninspiring with the exception of a few like Corporate Finance and the Economic History of China.  It was the general micro and macro economics courses that I found the most painful to sit through.  I wasn’t alone in this assessment.  Many of my close friends were Economics majors as well and we all felt the same way (I later found out this was because we were being indoctrinated in voodoo Keynesian economics) .  So even with the Economics degree I wasn’t sure that I wanted to pursue a career in finance given the fact that I found myself more interested in subjects such as English , History and Philosophy.  Nevertheless, the firms were hiring, I had the degree and it would allow me to move back to New York City without living at home.

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When God desires to destroy a thing, he entrusts its destruction to the thing itself.  Every bad institution of this world ends by suicide.

All the forces in the world are not so powerful as an idea whose time has come.

Adversity makes men, and prosperity makes monsters.

A creditor is worse than a slave-owner; for the master owns only your person, but a creditor owns your dignity, and can command it.

Common sense is in spite of, not as the result of education.

The omnipotence of evil has never resulted in anything but fruitless efforts. Our thoughts always escape from whoever tries to smother them.
– All quotes by Victor Hugo

We’re trying to figure out what the future of search is. One idea is that more and more searches are done on your behalf without you needing to type.  I actually think most people don’t want Google to answer their questions. They want Google to tell them what they should be doing next.
– Eric Schmidt CEO of Google
Welcome to Reality
Two years ago when I told everyone I knew that the United States was bankrupt and would ultimately default of its debt one way or the other (by inflation or restructuring) I was called crazy and dismissed by 95%+ of the people I met.  These days many of the same people still think I am crazy when I say that a political, financial and intelligence elite which has now teamed up with large corporations is attempting to create a global currency and world government (with them at the helm of course), but the notion that the U.S. is bankrupt is now more or less mainstream.  Even the corporatist/socialists in power are now unable to merely dismiss questions about the deficit.  The public has woken up from its slumber of consciousness and is now starting to see things as they are.  This is an extremely positive development and is why as I have said before I think the elite are in their last days as the freight train of consciousness runs them and their twisted illusions of grandeur into the sea.  The weakest link in this sick and corrupt financial system that was forced upon many of us before we were even born with its mechanics purposely hidden in the shadows so that we remained ignorant of its preposterousness, is the commodity market.  However, within the commodity market the weakest link is gold.  This is why any true attempt to force reform should revolve around a movement to dump compromised fiat paper in exchange for gold.  It is the weakest link of the controllers of humanity for many reasons but the primary reason is that increases in the price of all other commodities can be explained away by the media and financial pundits in other ways.  For example, if oil surges many can say it is global growth.  With gold this explanation doesn’t hold water because in theory most of the 160,000 tons that are estimated to be above ground since mankind started mining gold is potentially “for sale.”  This is because gold is mainly hoarded and not consumed.  Thus, it becomes impossible to say gold rising and hitting new highs is anything less than growing distrust in governments and their counterfeit money.  If it was anything else a large percentage of the hoarded gold would be mobilized and sold.  Many bears make their argument by using this fact.  They opine that since 160,000 is theoretically for sale in a market where annual production is closer to 2,500 tons that there will be a collapse.  The truth is that this is the most bullish argument of all.  The fact that smart money and central banks are unwilling to part with their gold at records is a function of the reality that the Western world is completely bankrupt and there is no way out of this without a hyperinflation event or a deflationary collapse that ends in restructuring.

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Come you masters of war
You that build all the guns
You that build the death planes
You that build all the bombs
You that hide behind walls
You that hide behind desks
I just want you to know
I can see through your masks…

You fasten all the triggers
For the others to fire
Then you sit back and watch
When the death count gets higher
You hide in your mansion’
As young people’s blood
Flows out of their bodies
And is buried in the mud.
–  Bob Dylan, Masters of War

Think of the press as a great keyboard on which the government can play.
– Joseph Goebbels

Has the Decoupling Already Started?
Two weeks back I wrote that we were at some major inflection point with oil being at $80/b and the market having had a significant bounce from the lows.  At the time I pondered whether we might start to see a break down in the “risk on/risk off” mindset that has led to commodities and equities trading almost in perfect conjunction with one another since mid 2008.  I said that I thought no one was positioned for a powerful move higher in commodity prices coupled with a flat to down market and that I saw evidence there was a good chance this was about to happen.  I mentioned that agriculture, oil and precious metals would likely be the leadership to the upside in the commodities space should this occur.

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Great things are done when men and mountains meet.  This is not done by jostling in the street.

Always be ready to speak your mind, and a base man will avoid you.

As a man is, so he sees. As the eye is formed, such are its powers.

Excessive sorrow laughs. Excessive joy weeps.

I must create a system or be enslaved by another mans. I will not reason and compare: my business is to create.

If the doors of perception were cleansed everything would appear to man as it is, infinite.

The weak in courage is strong in cunning.

What is grand is necessarily obscure to weak men. That which can be made explicit to the idiot is not worth my care.

You never know what is enough unless you know what is more than enough.
– All Quotes by William Blake

A Major Inflection Point is Upon Us
I have not commented on the financial markets in a detailed way for quite some time now.  This is not because I do not have strong opinions on them, rather it is because I see the current ongoing crisis as just as much a political and social crisis as an economic one and so I am compelled to address those concerns as I think it is in that arena that the greatest dangers exist.  Additionally, the major macro investment themes that I outlined well over a year ago remain the same.  Namely I think long investments in the United States stock market should be focused on precious metals miners, oil related energy shares and the agriculture theme.  Anything related to the ponzi economy like financials, real estate (commercial and residential) and traditional retail with little international presence should be avoided.  The final reason why I have not been more market focused is that with liquidity so bad and countless players seemingly exiting positions and taking risk down, sometimes I wonder who is really driving these markets.  Are the moves expressions of investors and their views on the future or is most of the trading actually related to sovereign interests engaged in financial warfare?  If it is indeed the later influence that is most profound then you can forget any possibility of rational moves on a day to day or even week to week basis.  Nevertheless, the market always wins in the end and this happens at major inflection points.  I think we are at one of those moments right now.

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If moderation is a fault then indifference is a crime.
-Jack Kerouac

Virtue is persecuted more by the wicked than it is loved by the good.
-Buddha

Having fallen from the eternal, the Evil One’s desires are endless, insatiable. Having fallen from pure Being, he is driven by the desire to possess, to fill his emptiness. But the problem is insoluble, always. He is compelled to have and to hold, to possess and consume, and nothing else. All he takes, he destroys. Certainly he rules the material, as he is called the Prince of this World in the gospels – but only of the things of this world.
-Denis de Rougemont

The Dangers of a Failed Presidency
I have been calling Barrack Obama’s Presidency a failure for at least six months now and it seems that I now have considerable company in this assessment as it becomes obvious to most.  It is not a failure because of the Republicans.  It is not a failure because of events beyond his control.  It is a failure because this was a man that filled a depressed and downtrodden nation with the audacity of hope.  When I voted for the man I knew it was against my personal financial interests.  It was clear what he would do with taxes.  Nevertheless, I got to the polls and voted for this fifth avenue creation thinking maybe, just maybe he might do some of the things he said.  Most important to me were two issues related to the military-industrial complex (see Eisenhower’s warning on this during his Farewell Address) and civil liberties.  George W Bush was turning America into a depressed police state with perpetual war and consolidation of power between a corporate oligarchy and entrenched political class.  A nation where the masses voluntarily gave up many of the liberties the founding fathers fought for merely to ease the fear that consumed them and which was propagated by the administration and the media.  I and many others that voted for him even though they disagreed strongly with his economic policies thought he would at least reverse this trend.  Why did we think this?  Cause he said so.  How foolish we were.

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Be the change you want to see in the world.
– Mahatma Gandhi

Back from the Road
I have just come back from a 40 day road trip across the United States of America.  It was without a doubt the single best experience of my life on every level imaginable.  I recognize how hard such a trip is for most people given individual circumstances but at some point in life if possible I would highly recommend doing something similar.  It was a total game changer for me.

I started Memorial Day weekend and went from NYC to Philadelphia, Pennsylvania then on to  Alexandria, Virginia;  Bedford, Virginia;  Asheville, North Carolina;  Nashville, Tennessee;  Memphis, Tennessee;  Clarksdale, Mississippi; Shreveport, Louisiana (not recommended unless you live on the East Texas border and have a gambling problem); Dallas, Texas;  Sweetwater, Texas; Alamogordo, New Mexico (White Sands);  Santa Fe, New Mexico;  The Grand Canyon;  Sedona, Arizona;  Las Vegas, Nevada;  Mt. Zion National Park, Utah (where my brother got married); Bryce Canyon National Park, Utah;  Salt Lake City, Utah;  Jackson, Wyoming (Grand Teton National Park); Yellowstone National Park, Wyoming;  Bozeman, Montana;  Mt. Rushmore/The Badlands, South Dakota;  Omaha, Nebraska (home of the sellout and recent propaganda mouthpiece Warren Buffett);  Indianapolis, Indiana;  Harrisburg, Pennsylvania;  Montauk, New York.

For a kid that grew up in Manhattan this was almost too much to handle, but in a profoundly positive way.  The communion with nature, the amazing conversations with random people in far off places about the things I write about in these emails and the new friends I made.  To the new people on this list that I met along the way, thanks for being a very important part of this trip which will forever hold a powerful grip on me.  Now onto the other stuff…

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As is true with respect to other great evils, the measures by which war might be made altogether impossible for the future may well be worse than even war itself.
– F.A. Hayek in The Road to Serfdom

Those who preach a “New Order” which is no more than a projection of the tendencies of the last forty years, and who can think of nothing better than to imitate Hitler.  It is, indeed, those who cry loudest for the New Order who are most completely under the sway of the ideas which have created this war and most of the evils from which we suffer.
– F.A. Hayek in The Road to Serfdom

I recently finished reading F.A. Hayek’s classic work The Road to Serfdom and quite frankly I was completely blown away.  Its author is one of the greats in Austrian economic thought and he won the Nobel Prize in Economics in 1974.  The Road to Serfdom was first published in Britain in 1944 and in the United States the following year.  I found the book to hold such significant lessons about the dangers of concentrated political and economic organization that I was compelled to write down many of my favorite quotes and passages in the email below.  Where I have found the need to comment I have added “my two cents.”  I suggest everyone on this list buy this book and read it if you have not already and to reread it if you had in the past.  It’s almost scary how he seems to be describing many of the exact same things that are happening today.  I guess that is because as much as things change, human nature never really does.  So we create the same disasters over and over.

I am about to head out on the road (not to serfdom hope!) and before I do I want to issue a rallying cry to everyone that craves freedom both politically and economically.  We must all at once stop identifying ourselves as Democrats and Republicans.  The elites use these definitions as part of a divide and conquer strategy.  In any event, Bush and Obama seem pretty similar to me anyway.  Two thugs.  We must get back to our roots and what made this country great.  The enemy is not someone from a different political party or a “capitalist” or a “socialist.”  The enemy is collectivist thought imposed on humanity from the top down.  Top down collectivist thought has taken on many forms whether it is Communism or Fascism but in the end what happens is a small ruling elite run the lives of 99% of the population.  Those that resist are killed or imprisoned.  I certainly do not think I have all the answers.  What I do know is that freedom loving people the world over must shed their prior false political identities and together agree on certain key principles.  There is a battle going on between a small highly organized group that wants a collectivist top down structure of world government and they are rushing to put these plans into action.  This is not conspiracy theory it’s very obvious if you open your eyes.  Get your money into real assets and get prepared so that you are not destitute when it comes time to stand up and rebuild.  We can make this world a better place but it’s not going to be easy.  I will be in touch.

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