6/18/08

Executive Summary:

• Relatively benign stock market index performance is masking severe financial weakness
• Judging by their stock charts, several good-sized banks might file for bankruptcy soon
• Financial market liquidity supplied by the Fed is at odds with their words that "credit market conditions are improving"


• The assets of the banks under duress are many, many multiples of total FDIC assets

"Pay no attention to the man behind the curtain!" barks the booming voice.

Unfortunately for the dumpy, balding ‘wizard,' the curtain has already been removed and he's been spotted.

The first two weeks of June (2008) have been all about knowing where to look. Let's peel back the curtain.

(5/27/08)

Executive Summary:

• In this report, I lay out my near- and intermediate-term investment themes.
• My assessment is that the economic and financial risks are exceptionally high and possibly historically unique. This is no time for complacency. A defensive stance is both warranted and prudent. A 50% - 70% (real) decline in the main stock market indexes is a distinct possibility, and portfolios should be ‘crash-proofed.'
• Heeding the calls that “a bottom is in” and “the recession could already be over” could be hazardous to your wealth.
• The recession is just beginning and will be the worst in several generations.
• Residential housing data is still accelerating to the downside, while commercial real estate is just beginning its long date with tough times. There is no bottom in sight for either.
• Inflation for life’s necessities is up, and rising energy costs will likely keep certain items at persistently high - and rising - prices for a very long time.

Bottom line: My assessment is that the financial and economic risks that currently exist are exceptional, historically unique, and possibly systemic in nature, and therefore call for non-status-quo responses. A defensive stance is both warranted and prudent. As for timing, my motto is, ‘I’d rather be a year early than a day late.’

Your bank account may not be as safe as you think (or hope). Taking a deeper look at the legal details and the financial depth of the FDIC reveals several troubling details that call into question how the FDIC would fare during a true banking crisis.

Are the current levels of debt in the US placing an immoral burden on succeeding generations? Here I make the argument that they are. (Note: This is an updated version of an article I wrote in 2006.)

Be careful what you believe.

A television ad for Morgan Stanley’s brokerage service flickers across the screen, showing a retired couple walking across a beach with a dog and their grandchildren. Smiles and ease and comfort drip off the screen. It is a happy, shiny future they are selling. Separately, a letter goes out from Morgan Stanley to their private clients warning of a “50% chance of a systemic crisis." Which do you believe?

Executive Summary:

• Keeping a wide-angle view on this developing crisis is the only way to avoid being whipsawed, and the stakes have never been higher (at least in our lifetime).
• The US financial markets, and probably the world’s, peered over an abyss on the night of Sunday March 16th 2008, but were rescued by very unusual and concerted official actions.
• On the “happy, shiny” side of the equation, we have the fact that stocks mysteriously went up immediately on the open after the announcement of the collapse of Bear Stearns, and have continued up since.

(Originally printed on 12-10-2007. Uncannily good predictions and recommendations. I stand by all of them)

Executive Summary:

• The credit bubble collapse is just getting started.

• Odds of a major systemic financial crisis now higher than ever.

• Dollar collapse is underway.

• Your opportunities to protect your assets are dwindling fast.

The greatest shortcoming of the human race is our inability to understand the exponential function. ~ Dr. Albert Bartlett

While it was operating well, our monetary system was a great system, one that fostered incredible technological innovation and advances in standards of living. But every system has its pros and its cons, and our monetary system has a doozy of a flaw.

It is run by humans.

Oh, wait, that's a valid complaint, but not the one I was looking for.

Here it is: Our monetary system must continually expand, forever.

Super Executive Summary:

Q: "Has the housing market bottomed, is it soon to bottom, or is it in the process of bottoming?"
A: No, nope, and no.

There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.

~ Ludwig Von Mises

First, a warning about the dollar. As you know, I've been keeping a close eye on the US dollar and have been very concerned over the years that the dollar would someday steeply decline against foreign currencies. In fact, the dollar has been steadily eroding in value for since 2002 and it is now poised at a critical spot where there are really only two choices: a sustained rally or a serious drop.

Prepare to be shocked.

The US is insolvent. There is simply no way for our national bills to be paid under current levels of taxation and promised benefits. Our combined federal deficits now total more than 400% of GDP.
That is the conclusion of a recent Treasury/OMB report entitled Financial Report of the United States Government that was quietly slipped out on a Friday (12/15/06), deep in the holiday season, with little fanfare.