Friday, September 9, 2011

Time To Prepare

Poor economic data continues to dominate the headlines as global markets continue to sink to new lows. Europe's banking system is on fire and is a few headlines away from a full blown Lehman moment where credit markets completely lock up, leading to bank failures of the weaker players. Greece is teetering on the verge of collapse as its economy has cratered over 7% in the second quarter of this year alone. At this point it is blatantly clear that Greece will have a hard default (with 57% 1 year yields this is worse than a pay-day loan) and at that moment we will see how prepared the European banking system is to deal with losses in the hundreds of billions. Not only that, but the CONfidence blow will be huge as other weaker EU countries will be looked at with fear as the rulers allowed a major default to take place.

The US has hit stall speed DESPITE a federal deficit of 12 percent of GDP. Already the administration is begging for more juice to keep the ponzi going as he demanded that CONgress pass a new "stimulis' this time in the amount of $450 billion. And how exactly will this get paid for? At this point it doesn't even matter as the pols will use their sorcerors in statistical fuddgery to cover the bleeding deficit as much as possible.

Incredibly, the US bond market has not punished our government for its reckless and suicidal finances as 10 year treasury yields have plunged to an amazing 1.90 percent! Even the 30 year is nearing a 2 handle with yields dropping to 3.25 percent today. The historic yield on the ten year is closer to 5 percent so at this point the US bond market is safe. In the event of a Eurozone collapse its possible that we see the dollar soar leading to a crash in the value of items priced in dollars (even the precious metals would take a hit in the event of the Euro getting obliterated) but at this point it is too soon to be calling for the end of the Eurozone.

All this being said, at SOME point the market will finally stare at the biggest fattest dirtiest pig, the United States of America. At some point, we will have our own Greek or Italian moment when the interest rates that we borrow at suddenly shoot higher. When or if this happens it will signify the end game for the current global monetary regime. I prepare for such an event on a monthly basis and suggest that you do the same. Perhaps the US will ride it out, will come up with some incredible energy source that will save the day. But at this point I'm following the trend, and the trend shows this country piling on debt upon debt to incredible levels with no end in sight. At some point, there can only be so much abuse of the universal economic rules.

In the end, this ponzi will break. And it is already breaking as graduates are coming out of school owing absurd amounts of money with few means of paying it back. 25 million unemployed which we have today will seem like a luxury if the bond market breaks as 50 million unemployed is possible. Local governments are bleeding deficits as a weaker tax base cannot satisfy the demands of 8 percent annual growth assumptions. Despite the kicking and the screaming pension beneficiaries will take cuts in said benefits as the money will simply not be there. Expectations will be forced to deal with reality and the reality check will be painful for many. But it doesnt have to be that painful for you. Be prudent, be frugal, work your ass off now. Dont buy a new car, buy a used one with good gas mileage. Ever since I got my drivers license I have driven luxury BMW's. This past month I bought a used Corolla for 11k, 5k down, 6k note LOL. I adjusted and my community looked at me with an odd look. In 2007 they would have laughed. Today I tell them that my tires cost $50 to replace and they nod their heads in approval. Everyone can adjust. Buy some precious metals to hedge against a monetary catastrophe. Work two jobs if you have to. Play time is over, the storm is here. The strong and diligent will survive. The weak and unfortunate will perish in this global modern day famine.

For those that have heavy student loans the only consolation is IBR (still bad), consolidation and maturity extension or skipping the country. Move in with roomates if you have to, keep living expenses at an absolute low. I still live with my parents and as hard as it can be at times I tough it up and put that money away. Things can be done to solidify your position and prepare.

That's all for now. Lets see what next week brings.



  2. Hey SP. I've read your blog for a while, but haven't ever commented. Signs of the Euro zone's cracks are everywhere now. The EC, ECB, and EU need to vote to eject Greece, Spain, Portugal and Italy from the Euro to maintain any semblance of a unified European economy. Now. Disruptive and violent currency swings will happen much sooner rather than later if this isn't done quickly. Investors have apparently lost all confidence in Greece in the past 2 weeks. Now investors are moving out of the Euro into more "stable" currencies such as the USD, CHF, and GBP at alarming rates. Today, for example, the Swiss Central Bank capped (i.e. pegged) the CHF at 1.20 against the Euro citing wild overvaluation. Artificially pegging a currency's exchange rate sure makes traders happy.

    A Greek default alone could likely be contained within the Euro and EU. However, once Greece defaults, investors will almost certainly immediately lose confidence in Spain, Italy, and Portugal. Spain's unemployment is upwards of 20%. I don't know where this is headed, but it doesn't look pretty. I think a wholesale European depression is unlikely, but a panic similar to 1873 appears more and more possible.

  3. Thanks for throwing in your two cents. UBS recently released a report discussing the risks of a Eurozone breakup and basically said that monetary union failures were rare but when tehey did occur said failure would culminate in civil war and/or authoritarian regimes taking over.

    Once Europe goes down all eyes on the US. This serves as a warning to all the hardcore dollar bears out there who are convinced that the USD is going to drop to 50 on the index. It may do that but it could also scream higher above 90 if the EUR either fails or nearly fails. Gold "should" sell off in this type of event as it is priced in dollars and with the dollar gaining all its counterparts should fall in price. But think of this like the Titanic that had its last flat moment after it snapped in two but before it sank.

  4. I read The Late, Great Planet Earth, and The 1980's:Countdown to Armageddon (by Hal Lindsey) when those books were still new because they seemed like science fiction. Now I am living them, and it is very unnerving to watch an entire planet go insane. Read them for yourselves to see just how prescient those books were, and are.

  5. Hi, I'm another person who's been reading for a while but haven't commented before. I've always found your economic commentary interesting, and it's now become more relevant to me personally - after years of living paycheck to paycheck I've recently inherited a large sum of money and am now realising that there's no remotely safe investment I can make. Oh well, at least I'm used to being broke.

  6. I was just looking through the plethora of lawyer job advertisements of the various legal employment agencies. They all look fake. A bona fide job advertisement is usually quite specific. These are all very general in their job descriptions. Someone needs to pistol whip these legal job agencies.

  7. My car's a bicycle. Cheap,dependable and fun.

    Prescient post given French banks have just been downgraded.

  8. In Georgia recently, a 14-year-old teen stabbed his grandmother and his great-grandmother with a sword. The 77-year-old great grandmother is dead, but it looks like the grandmother is going to be okay.

    All over the nation, there are reports of kids killing their parents. A 21-year-old man in the Chicago area is accused of killing his father with a weed trimmer while his father was sleeping in bed.

    In one of the most famous cases of parental murder this year, a 17-year-old Florida teen killed his parents with a hammer, hid their bodies in the master bedroom, and then invited dozens of people over for a massive house party.

  9. What do you suppose that Orlov means by the following?

    "...complete construction kits for businesses to deliver products and services that are certain to be in high demand, for lack of better alternatives."

    I'll be speaking at the ASPO in Washington, DC on November 2-5 on why gradual energy descent is a science-fiction scenario that includes friendly oil-exporting space aliens and why the end of the fossil fuel age is likely to be a step-function. I will also talk about investing for post-collapse. I believe that there might still be time to engineer a soft landing at the end of the upcoming economic cliff-diving exercise. This can be done if groups of individuals decide to sell off financial instruments that will have little or no survival value post-collapse (stocks, bonds, gold, etc.) and invest in something that is not useful now but will be: complete construction kits for businesses to deliver products and services that are certain to be in high demand, for lack of better alternatives. To make this scenario possible, it is necessary to design plans, recruit people and stockpile and pre-position materials while finance, industry and transportation systems are still functioning. I hope to see some of you there.

  10. eToro is the most recommended forex broker for beginner and pro traders.


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