Weekly Articles 2011

This really bothers me. You have to love that Warren Buffett, the richest man in the world, has deemed himself representative and ambassador for those making $250,000 and more…”People like myself” he says. People that take home $250,000 a year before taxes are somehow in the same category as the richest man in the world? I would say there is a fairly large gap between a $250,000 annual income and a $45 billion empire. And how did the powers that be arrive at this arbitrary yet significant figure of $250,000 as the line for dividing rich and poor?  Warren, why not donate your money to the government that you feel so strongly should be funded with more money from the “rich” that you have appointed yourself representative of?  I am beyond disgusted by these righteous “do as I say, not as I do folks that have already made a fortune and yet are lobbying for higher taxes as though they are elected representatives for the government’s definition of “rich”, meanwhile by and large their wealth has already been made and tax policy is immaterial to their incremental future wealth. If he feels so strongly about what people like him should be paying, WHAT’S STOPPING HIM? Pay more then, Warren, if it means so much to you. Nobody is stopping you and the government will gladly accept a larger check from you on April 15th. Meanwhile stop meddling in the business of people that are eons and light years away from you in wealth and are still working daily to achieve their own financial success and stability. And I’m not against paying more in taxes…I’m just against higher taxes as long as it’s being funneled to the reckless careless idiots in Washington DC currently in charge of spending it…but that’s subject for another conversation altogether.

– Written by a friend of mine last November

A Wolf in Sheep’s Clothing

Anyone that has read these pieces for a while knows where I stand on Warren Buffett.  Namely I can’t stand him.  It has nothing to do with the fact that he has so much money.  I am not an envious person and moreover I think having wealth anywhere near his is more of a curse than a blessing.  The reason I can’t stand him is because he is a fraud.  While he may have been a great investor at one point, he is more of a great actor than anything else.  Here is one of the richest people in the world.  He sits there in Nebraska, chuckling, drinking his cherry coke and eating hamburgers in this pathetically obvious attempt to convince the masses he is “just like us.”  The term wolf in sheep’s clothing was invented for guys like this.  Like most people out there I don’t like bad guys.  The trick; however, is that the most dangerous bad guys don’t come out and tell you they are bad guys and how they are going to fleece you.  What they do is pretend they are the good guys.  Pretend that they are on the side of the little guy or working for the “collective good,” which is a preposterous statement because there is no such thing.  Human desires and notions of what is a good life are as varied as the stars in the sky.  Once we start allowing officials or rich people to define “collective good” you can be sure we are finished.

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Oh the time will come up
When the winds will stop
And the breeze will cease to be breathin’
Like the stillness in the wind
Before the hurricane begins
The hour that the ship comes in.

And the sea will split
And the ships will hit
And the sands on the shoreline will be shaking
Then the tide will sound
And the waves will pound
And the morning will be breaking…
Oh the foes will rise
With the sleep still in their eyes
And they’ll jerk from their beds and think they’re dreamin’
But they’ll pinch themselves and squeal
And they’ll know that it’s for real
The hour that the ship comes in.
Then they’ll raise their hands
Sayin’ we’ll meet all your demands
But we’ll shout from the bow your days are numbered

– Bob Dylan, “When the Ship Comes In”

They’re selling postcards of the hanging
They’re painting the passports brown
The beauty parlor is filled with sailors
The circus is in town
Here comes the blind commissioner
They’ve got him in a trance
One hand is tied to the tight-rope walker
The other is in his pants
And the riot squad they’re restless
They need somewhere to go
As Lady and I look out tonight
From Desolation Row…

Now at midnight all the agents
And the superhuman crew
Come out and round up everyone
That knows more than they do
Then they bring them to the factory
Where the heart-attack machine
Is strapped across their shoulders
And then the kerosene
Is brought down from the castles
By insurance men who go
Check to see that nobody is escaping
To Desolation Row

Praise be to Nero’s Neptune
The Titanic sails at dawn
And everybody’s shouting
“Which Side Are You On?”

– Bob Dylan, “Desolation Row”

Whatever it Takes

Of the many lamentable things to have emerged from the financial crisis and the subsequent rape of the American public by Wall Street and their employees in Washington D.C. has been the emergence of catchy phrases used by the criminal elite class to sell us on our own servitude.  We know all about that horrid “Too Big To Fail” gimmick, the entire concept of which is anti-freedom and anti-capitalism but right up there on the list of irritating and dangerous statements is the constant use by central planners like The Bernank and Tiny Timmy Geithner that they would do “whatever it takes.”  Ah, but what does this mean.  Whatever it takes.  Let’s think about this for a second.  Whatever it takes to achieve what exactly?  They say to boost the economy but in reality when you look at what they really mean is “whatever it takes” to PRESERVE THE STATUS QUO.  A status quo that has not worked for the vast majority of Americans for decades and will not work for 99.9% of us going forward.  Key to preserving the status quo is the preservation of the financial and monetary system as it exists today.  During 2008, traitors like Hank Paulson were able to con most of us by saying that we risked a destruction of the financial system as an excuse to give the banksters and their allies a blank check.  The con wasn’t in the notion that the financial system risked implosion as I believe that statement was most likely true.  The con was that since most Americans don’t have a clue how the financial system works they merely became scared and reflexively agreed in their own minds that “well of course the financial system must be saved.”  I on the other hand argue that the financial system is a ponzi scheme that enriches only the three enshrined parasite classes that dominate America today.  The TBTF Wall Street banks, the military industrial complex and the politicians and lobbyists in D.C. that line their pockets.  Everyone else gets sucked dry.  I have spent the last three years of my life writing about this so that people understand when the next major crisis happens who is to blame and more importantly I want to instill in people the courage to look outside of this immoral money system to something that can move us forward when this one gets dismantled.  I do not claim to have the answers I am just trying to get people to ask the right questions and get educated on how things operate.  We the People must own the debate or it will own us.

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It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.

– The Opening Paragraph from Charles Dickens’, A Tale of Two Cities

Bubbles, Bubbles Everywhere…

Without the ability to identify bubbles I’d pretty much be useless in this business.  I live, breathe and eat macro news and trends.  It is what I am inherently good at and I leverage that talent to the best of my ability.  On the other hand put me in front of a financial model and I want to blow my brains out within 20 minutes.  I am not exaggerating.  I worked in equity research for five years.  I learned a lot actually and I am very lucky to have had the experience but it was like taking a fish out of the water, tossing it in the air and telling it to fly.  It just wasn’t natural.  I have always said that people screw up when they don’t figure out what they are naturally good at and then stick to that, but rather attempt to be a jack of all trades.  I make a living off of people that don’t get that.  I love it when people engage in my world when they have no business doing so, but the best types, the types that make people like me salivate are those that are ignorant of the macro world but also suffer from the deadly (to them) combination of large bank accounts and equally large egos.

So I haven’t written about many “bubbles” since 2008.  Back then I was at Bernstein and I was hardly capable of writing a word without  saying commodities were a bubble ready to crater.  I also hammered home the point of the “fert.coms,” which included POT and MOS.  The main reason I haven’t written about similar bubbles is because I have been 100% focused on what is likely the biggest bubble in the history of mankind.  The fiat U.S. dollar and all income streams related to it.  Of course, the inverse to this monumental bubble are gold and silver and the commodities necessary to everyday life (food and energy) and as such I have been wildly bullish on those particular items.  This is the most amazingly easy trade I have ever stumbled upon because it takes some serious macro thinking and a grasp of financial history to understand the precious metals markets.  These are two things Wall Street is not very good at.  Even better, Wall Street is full of ego maniacs with lots of money.  So all a lot of these clowns do is look at the price charts of gold and silver and the childish thought “bubble” pops into their clouded heads.  Of course it’s very tempting to just look at the charts and think this if you don’t understand what is really driving their ascent.  The popping of the largest bubble in human history.  The fiat, counterfeit, and immoral U.S. dollar standard.

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Whenever the economic life of a nation becomes pre­carious, the central government is forced to assume additional responsibilities for the general welfare.  It must work out elaborate plans for dealing with a criti­cal situation; it must impose ever greater restrictions upon the activities of its subjects; and if, as is very likely, worsening economic conditions result in polit­ical unrest, or open rebellion, the central government must intervene to preserve public order and its own authority. More and more power is thus concentrated in the hands of the executives and their bureaucratic managers. But the nature of power is such that even those who have not sought it, but have had it forced upon them, tend to acquire a taste for more. “Lead us not into temptation,” we pray — and with good reason; for when human beings are tempted too enticingly or too long, they generally yield. A democratic constitu­tion is a device for preventing the local rulers from yielding to those particularly dangerous temptations that arise when too much power is concentrated in too few hands.

– Aldus Huxley, Brave New World Revisited

A nation can survive its fools, and even the ambitious. But it cannot survive treason from within. An enemy at the gates is less formidable, for he is known and carries his banner openly. But the traitor moves amongst those within the gate freely, his sly whispers rustling through all the alleys, heard in the very halls of government itself. …He rots the soul of a nation, he works secretly and unknown in the night to undermine the pillars of the city, he infects the body politic so that it can no longer resist.

– Marcus Tullius Cicero (106 BC—43 BC)

 
QE3:  It Will Merely Keep the Lights On

This is a piece that has been festering in my head for quite some time now and I was waiting for the right moment to pen it.  That time is now.  In some ways The Bernank made a huge mistake by not launching QE3 right away when he had the chance.  Now don’t get me wrong, I am not in favor of any of this nonsense and I think The Bernank’s profession needs to go the way of the dodo bird, but I mean from the perspective of a Central Banker I think he made a big mistake by taking a breather from at least the printing and manipulations that they admit to.  The reason I say this is because up until the last month or so The Fed had been essentially telling the American sheeple that all was under control and that since The Bernank had studied the Great Depression and Japan he could save us from all the mistakes that were made back in those less enlightened times.  The Fed was saying that they could pull off the equivalent of preventing a serious hangover for someone that chugged an entire bottle of tequila.  They basically claimed to have found a way to break the laws of the universe.

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Right now, thanks in large part to Federal Reserve policy, Uncle Sam can borrow at an average cost of just 2.5 percent. The average borrowing cost over the last three decades was 5.7 percent. Our debt is now $14 trillion and scheduled to grow to $25 trillion by the end of the decade. If interest rates normalize over that period the added interest costs in 2021 alone will be $800 billion—more than 20 times the mere $37 billion in budget cuts that tore up Congress in March. It would take virtually all of the cuts in the Ryan budget just to cover that added interest, much less to start bringing down the national debt. Unfortunately, the Fed is now in a fiscal box. A normalization of interest rates would break the Treasury. Hence, a normalization of rates really can’t happen—we’re stuck in a world in which the Fed must keep rates artificially low in order to prevent a budget disaster.

– Lawrence Lindsey writing in the Weekly Standard June 13, 2001 (and you think we won’t print more!!!)

QUESTION: During the Japanese lost decade in the 1990s, you strongly criticized Japan’s (inaudible)policies . Recently, Larry Summers suggested in his column that the U.S.is in the middle of its own lost decade. Based on those points, with Q.E. II ending, what do you think of Japan’s experience and the reality facing the U.S.? Are there any historical lessons that we should be reminded about?  Thank you.

BERNANKE: Well, I’m a little bit more sympathetic to central bankers now than I was 10 years ago.

– Q&A During The Bernank’s Second Press Conference Yesterday

The Bernank Flop:  Part Deux

That’s two press conferences laden with softball questions from “the press” and two epic flops by The Bernank.  Two extremely important things that came out of the disaster that was this event yesterday.  First, I want to point your attention to the quote I pasted at the top.  In response to the question of where The Bernank stood on monetary policy in light of his prior arrogant and cocksure statements a decade earlier about how the Japanese were being too passive in their methods he stated “Well, I’m a little bit more sympathetic to central bankers now than I was 10 years ago.”  BINGO.  That was far and away the most important thing he said the whole press conference.  Why?  Well, for several reasons.  First, it was pretty much the only spontaneous unscripted thing he said the whole time.  Second, because this is him basically admitting that sitting in an ivory tower telling others how to save the free world via monetary policy was a naive and idiotic thing to do (why people still believe in central banking, I mean planning, is beyond me).  Talk is cheap and The Bernank now has had time to test his sad statist theories and guess what happened?  He failed miserably in front of the entire world.  By saying that he is “more sympathetic to central bankers” he is saying that theories are one thing and he now realizes that.  This is HUGE.  The Bernank has no clothes.

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All quotes below are taken from a Bernank paper written in 1999 titled “Japanese Monetary Policy: A Case of Self-Induced Paralysis?”

Although it is not essential to the arguments I want to make—-which concern what monetary policy should do now, not what it has done in the past—-I tend to agree with the conventional wisdom that attributes much of Japan’s current dilemma to exceptionally poor monetary policy-making over the past fifteen years.

Indeed, as I will discuss, I believe that a policy of aggressive depreciation of the yen would by itself probably suffice to get the Japanese economy moving again.

On the issue of announcement effects, theory and practice suggest that “cheap talk” can in fact sometimes affect expectations, particularly when there is no conflict between what a “player” announces and that player’s incentives.

Suppose that the yen depreciation strategy is tried but fails to raise aggregate demand and prices sufficiently, perhaps because at some point Japan’s trading partners do object to further falls in the yen. An alternative strategy, which does not rely at all on trade diversion, is money-financed transfers to domestic households—-the real-life equivalent of that hoary thought experiment, the “helicopter drop” of newly printed money.

Franklin D. Roosevelt was elected President of the United States in 1932 with the mandate to get the country out of the Depression. In the end, the most effective actions he took were the same that Japan needs to take—-namely, rehabilitation of the banking system and devaluation of the currency to promote monetary easing. But Roosevelt’s specific policy actions were, I think, less important than his willingness to be aggressive and to experiment—-in short, to do whatever was necessary to get the country moving again. Many of his policies did not work as intended, but in the end FDR deserves great credit for having the courage to abandon failed paradigms and to do what needed to be done.

What Did You do Tuesday Night?

Well you probably had a lot more fun than I did.  I spent part of the later hours of the evening reading a paper written by The Bernank in 1999 titled “Japanese Monetary Policy: A Case of Self-Induced Paralysis?”  While I have never doubted for a second that this man will print the dollar into oblivion, I have been shocked by the amount of players in the market that have fallen for what I like to call the “Bernank Bluff,” which simply is my view that he needs cover to print more and therefore will tell the market he is going to stop while QE2 is still in action so that he can push undesirable asset price inflation down (commodities) while continuing to print!  I went and read this paper to confirm what I already knew about this man.  Namely, that he is an extremely dangerous psychopath who believes proper monetary policy can save the world from all ills and he is the superman that will implement the appropriate policies for the first time in history.  This is how he sees himself.  In reality, he is nothing more than a parlor magician brainwashed by his own bullshit and who is doing nothing novel, but rather the same thing all bankrupt governments have done since the beginning of time.  He is merely printing money and causing devastating inflation, yet he seems to think he is the first person to come up with this idea!

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The smart way to keep people passive and obedient is to strictly limit the spectrum of acceptable opinion, but allow very lively debate within that spectrum – even encourage the more critical and dissident views. That gives people the sense that there’s free thinking going on, while all the time the presuppositions of the system are being reinforced by the limits put on the range of the debate.
– Noam Chomsky
Nobel awards are merely a honorary award in groupthink, presented to anyone who perpetuates the status quo with little regard for actual merit-based contribution.

– Tyler Durden of Zerohedge

A Brief History

I am particularly untalented at a lot of things.  It can be frustrating sometimes, the way my mind works.  Some parts of it just seem to be overly stimulated and powerful, while others appear depressingly average.  I have always been of the belief that everyone has some personality trait that is particularly strong relative to the others and if they are able to identify that strength and focus on it they can ultimately reach their highest potential.  Early on in life it was pointed out to me by family and friends that I had an uncanny ability to process current information and extrapolate that into future likely trends.  To me the observations I made seemed so obvious I didn’t even contemplate that it could be a unique talent.  I didn’t realize it was until I came to Wall Street.

From 2000-2005 I toiled anonymously at Lehman Brothers as one of the junior people on the oil analyst’s research team.  Sometime around 2003, I started looking into the growth trends of China, India and other nations combined with recent oil supply growth trends and a light bulb went off.  Oil was about to explode higher.  It was around this time I also realized that research was too slow and painfully tedious for my personality.  Some of the most senior people in research thought I should look into being a trading desk analyst for energy.  Thus began a process where I would go down to the trading desk every few days and attempt to kiss ass.  I am the worst ass kisser on planet earth.  In fact, I am really actually incapable of it.  I also went through some one on one interviews with the guys on the desk.  We would talk oil and I was often asked where I thought it was going.  I would reply with “much higher” and that I thought it would need to get to at least $70/b in the next few years to ration demand.  I was literally laughed at or looked at as if I was insane.  Oil was trading at $30/b or so at the time.  I didn’t get the position.

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If you don’t become an actor, you’ll never be a factor
Pills with million side effects, take em when the pain’s felt
Wash them down with diet soda, killing off your brain cells
Crooked banks around the world, would gladly give a loan today
So if you ever miss a payment, they can take your home away
It’s so loud inside my head with words that I should have said
As I drown in my regrets I can’t take back the words I never said

I think that all the silence is worse than all the violence
Fear is such a weak emotion that’s why I despise it
We scared of almost everything, afraid to even tell the truth
So scared of what you think of me, I’m scared of even telling you
Sometimes I’m like the only person I feel safe to tell it to
I’m locked inside a cell in me, I know there’s a jail in you
Consider this your bailing out, so take a breath inhale a few
My screams are finally getting free, my thoughts are finally yelling through

– Lupe Fiasco, “Words I Never Said” (see music video here http://www.youtube.com/watch?v=22l1sf5JZD0)

All this was inspired by the principle–which is quite true within itself–that in the big lie there is always a certain force of credibility; because the broad masses of a nation are always more easily corrupted in the deeper strata of their emotional nature than consciously or voluntarily; and thus in the primitive simplicity of their minds they more readily fall victims to the big lie than the small lie, since they themselves often tell small lies in little matters but would be ashamed to resort to large-scale falsehoods. It would never come into their heads to fabricate colossal untruths, and they would not believe that others could have the impudence to distort the truth so infamously.  Even though the facts which prove this to be so may be brought clearly to their minds, they will still doubt and waver and will continue to think that there may be some other explanation. For the grossly impudent lie always leaves traces behind it, even after it has been nailed down, a fact which is known to all expert liars in this world and to all who conspire together in the art of lying.

– Adolf Hitler in Mein Kampf

It’s Transitory
As I have mentioned several times before, CNBC is on in my apartment for about thirty minutes in the morning as I get prepared for the day ahead.  Even these thirty minutes have become essentially too intellectually painful to watch.  The channel is a total joke.  Nevertheless, it has become a good place to look for the latest “memes” being rolled out by the Wall Street Bankster/Washington D.C. Criminal “elite” class.  In case you haven’t noticed, the latest one is the “It’s Transitory” meme.  This was first launched in earnest by the Bernank whenever he refers to inflation.  Basically in his world of smoke and mirror parlor tricks any of the undesirable effects of QE such as the destruction of fiat money and the resultant surge in commodity prices are “transitory” yet any of the positive effects, like the three McDonalds jobs that have been created are signs of the economy gaining momentum.  The whole thing is actually quite brilliant.  We must give credit to the slimy sorcerers where it is due.   This so called “elite” class of people have achieved their positions by attaining an absolute mastery of the practice of lying.  They are expert illusionists.

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There is a tide in the affairs of men, which taken at the flood, leads on to fortune.  Omitted, all the voyage of their life is bound in shallows and in miseries.  On such a full sea are we now afloat.  And we must take the current when it serves, or lose our ventures.

– Brutus in William Shakespeare’s Julius Caesar

I was born for the storm and a calm does not suit me.

– Andrew Jackson

Risk Redefined
I remember the first time I saw someone us the terms “risk on” and “risk off” as a way to describe the flow of capital into and out of certain baskets of assets that are supposedly “risky” or “safe.”  The terms got under my skin back then and they continue to do so until this day.  Wall Street and the media just love coming up with trite and untruthful statements as a way to condition investor behavior and ultimately separate you from your money.  First of all, the world and the successful deployment of capital is much more complicated over any serious investment horizon than the simplification of everything into “risk on” and “risk off.”  This way of thinking is even more dangerous when conventional wisdom allocates to the “risky” category many items that are in reality the true safe havens and to the “safe” category those that are guaranteed to destroy your financial well being.

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Desolate and without purpose
Radiating from so many septic sources
Forming the fabric of a wayward people
Disappearing as the vestiges of our past

Scratched like tartan into virgin soil
A substrate for progress and disarray
A spreading network of broken dreams
Searching for a thoroughfare to take us away

Just a little tale from the streets of America
Sparkled promises paved with pathos and hysteria
Trenchant, weary native sons
Step back, step back
And see the damage done

Shoot straight to the horizon
The streets of America

– Bad Religion, “Streets of America”

A nation that is afraid to let its people judge truth and falsehood in an open market is a nation that is afraid of its people.
– John F. Kennedy

Printing and Propaganda
As I have been saying for the past several years, the misguided Keynesian witch doctor central planners unfortunately in charge of our economic fate are attempting a grand experiment on us based on completely insane and nonsensical theories that have no chance at success.  These clowns claim to have all sorts of “tools” but in reality they have nothing.  When faced with a complete credit collapse of proportions never seen before in recorded history there were and are only two “tools.”  It’s the two P’s:  Printing and Propaganda.

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