Do not be fooled by what the government tells you, watch how they act. This is critical at this junction in the road. QE2 is basically over, the market is under serious threat and there is every chance that we could slip back into another recession. Looking at the facts it appears that things may be worse than you think.
As of today the unemployment rate is stuck well above 8% and may start to trend higher. The reason for this is that yesterday President Obama announced early withdrawal from Afghanistan. 10,000 troops will start to be pulled out of the country in the coming months. This was done to stave off the massive expenditure that the United States has in fighting all the wars around the world. This was never a war that was going to be won but it did cost the taxpayer over $1 trillion and is climbing by billions of dollars a month. In order to try to cut the current massive government deficit expenditure needs to be cut. Bringing the troops home will go a long way toward narrowing the deficit. The war was a failure other than more than $1 trillion later we caught and killed Osama. That has to go down as the costliest manhunt ever recorded.
Financial costs aside, the cost of human life was huge and, due to the superior air power, medical aid and communications, far more wounded soldiers were kept alive than ever before. This will have an immeasurable toll on American society for years to come as these young men and women will require (and deservedly so) our support. To those who fought on behalf of their country I salute you, but this war could never be won and now it is time to withdraw before more lives are lost.
I would anticipate that the withdrawal will also mean a reduction in military personnel required. This will feed into the unemployment rate as the government is the largest employer in the United States by far. The deficit is out of control and the government has now admitted that by pulling back from Afghanistan. It was expected but it was accelerated and this points to massive problems below the surface. I would expect more budget cuts and layoffs coming out of the government soon and these cannot be picked up by the private sector. There is trouble brewing in Washington.
After spending trillions of dollars fiscal responsibility is required. There has been no economic traction to date and all the bandages are starting to fester and reveal themselves. The unemployment rate is still high, the housing market continues to crater and inflation is crimping consumer spending. Banks are dealing with the housing melt down and are loathed to invest money and why would they when they can earn a spread by giving the free money straight back to the government? Across the Atlantic Greece's problems never went away they just festered. Without a currency that fluctuates there is no way out of their mess except a massive growth in GDP. This is not likely so their problems will continue to plague the European economy dragging down growth.
Bernanke just reduced his forecast for GDP growth by 10% from 3.1% to 2.7%. This is still too high and will be reduced further, but the magnitude of the decline is large by any measure. With growth this slow (and I question whether the real rate will be anywhere near to these levels) it means that housing and the economy will continue to struggle and unemployment will continue to remain elevated. The only part of the economy that has increased with all the stimulus money is the stock market and that is looking like it is on its last legs. I would once again advise you to take your profits off the table and hunker down for the foreseeable future as I believe that the future may be worse than any of us expected.
Those of you in cash visit my website www.fixedratedeposits.com to find out how you can earn a great rate of return while keeping your money safe, secure and liquid.
Thursday, June 23, 2011
Friday, June 17, 2011
QE3
Is it time for QE3 already? With a few more weeks of QE2 left things are not looking good for the equity markets. The S&P 500 is down almost 8% from its peak and this has happened in just over 5 weeks. The market is now pinned on the 200 day moving average, a very important level of support for all of you technical analysts, and the dollar index has turned around and looks like it is ready to continue its strength unless the dollar killer, Mr. Bernanke, steps in again and prints more money.
A stronger dollar is starting to improve things for the consumer. Oil prices have plunged as you can see by the chart at the following link http://www.danielstrading.com/resources/quotes-and-charts/quotes.php?page=chart&sym=CLN11 and this is providing much needed relief at the pump. The ten year note continues its parabolic rise as the stock market craters and this will keep interest rates low for purchasers of housing http://www.danielstrading.com/resources/quotes-and-charts/quotes.php?page=chart&sym=ZNU11. Furthermore wheat and other grain prices are starting to fall which should start to alleviate further stress on the consumer at the grocery store http://www.danielstrading.com/resources/quotes-and-charts/quotes.php?page=chart&sym=ZWN11.
So why would Mr. Bernanke and his motley crew print more money when the effects of an end to QE2 are so evident? The main reason is that the stock market will collapse without its juice and this is the only success that the Federal Reserve has had after over $2 trillion of money printing. Our intrepid leader has stated that he will continue to print money until there are signs of an improvement and I for one believe that he will do just that. Make the bankers and their friends wealthy while destroying the credibility of the country. More printing will lead to another round of dollar weakness, more strength to the price of oil and grains and more pain for the consumer.
Recently Wal Mart stores reported weak numbers while Tiffanys reported excellent numbers. The divide between the haves and have not's is widening. Most people in the United States are not affected by movements in the stock market. What really affects them is the price of staple consumption items and housing. Printing more money is not helping either of these markets and is in fact hurting the consumer further. In the meantime the investment bankers and traders are getting fat on the profits from the gains in the stock markets.
The other issue is that while Mr. Bernanke can continue to print money at will for now at some point the excess cash will cause further problems. In the beginning you have bubbles and these burst. Normal market operations can clear out the weak and overpriced investments and clean the slate for a recovery. The money is then allocated to more sound investment ideas and the market once again flourishes on a more solid footing. This has not been allowed to happen in either of the previous two bubbles. In fact at the end of each bubble the Federal Reserve printed even more money than previously to "save" the economy. Essentially they saved themselves and their cohorts and have pushed the economy to the brink of collapse.
Continued money printing will eventually end in ruin. Hyperinflation is one outcome, loss of credibility in the financial strength of the United States is another and there are many more, but the point is that these outcomes will hurt far more people in far worse ways than letting the market take a hit and then recover on its own. Enough money has been printed with little result other than making stock market bulls richer. The general economy has not recovered and more printing will not improve it, but it will lead to a poor result.
So will the Federal Reserve print more money? I believe that they will and they will embark on a new strategy in the very near future. This may support the market once more but I believe that once again this support will prove fleeting and will result in a horrendous ending. Even if QE3 is announced and the market rallies once more, I would be very careful not to get sucked in as one day when everyone rushes for the exits and the next Black Swan day arrives, you will lose far more than by leaving some gains on the table.
Keep your powder dry and look to invest your cash in a safe, secure and liquid investment by visiting http://www.fixedratedeposits.com/.
A stronger dollar is starting to improve things for the consumer. Oil prices have plunged as you can see by the chart at the following link http://www.danielstrading.com/resources/quotes-and-charts/quotes.php?page=chart&sym=CLN11 and this is providing much needed relief at the pump. The ten year note continues its parabolic rise as the stock market craters and this will keep interest rates low for purchasers of housing http://www.danielstrading.com/resources/quotes-and-charts/quotes.php?page=chart&sym=ZNU11. Furthermore wheat and other grain prices are starting to fall which should start to alleviate further stress on the consumer at the grocery store http://www.danielstrading.com/resources/quotes-and-charts/quotes.php?page=chart&sym=ZWN11.
So why would Mr. Bernanke and his motley crew print more money when the effects of an end to QE2 are so evident? The main reason is that the stock market will collapse without its juice and this is the only success that the Federal Reserve has had after over $2 trillion of money printing. Our intrepid leader has stated that he will continue to print money until there are signs of an improvement and I for one believe that he will do just that. Make the bankers and their friends wealthy while destroying the credibility of the country. More printing will lead to another round of dollar weakness, more strength to the price of oil and grains and more pain for the consumer.
Recently Wal Mart stores reported weak numbers while Tiffanys reported excellent numbers. The divide between the haves and have not's is widening. Most people in the United States are not affected by movements in the stock market. What really affects them is the price of staple consumption items and housing. Printing more money is not helping either of these markets and is in fact hurting the consumer further. In the meantime the investment bankers and traders are getting fat on the profits from the gains in the stock markets.
The other issue is that while Mr. Bernanke can continue to print money at will for now at some point the excess cash will cause further problems. In the beginning you have bubbles and these burst. Normal market operations can clear out the weak and overpriced investments and clean the slate for a recovery. The money is then allocated to more sound investment ideas and the market once again flourishes on a more solid footing. This has not been allowed to happen in either of the previous two bubbles. In fact at the end of each bubble the Federal Reserve printed even more money than previously to "save" the economy. Essentially they saved themselves and their cohorts and have pushed the economy to the brink of collapse.
Continued money printing will eventually end in ruin. Hyperinflation is one outcome, loss of credibility in the financial strength of the United States is another and there are many more, but the point is that these outcomes will hurt far more people in far worse ways than letting the market take a hit and then recover on its own. Enough money has been printed with little result other than making stock market bulls richer. The general economy has not recovered and more printing will not improve it, but it will lead to a poor result.
So will the Federal Reserve print more money? I believe that they will and they will embark on a new strategy in the very near future. This may support the market once more but I believe that once again this support will prove fleeting and will result in a horrendous ending. Even if QE3 is announced and the market rallies once more, I would be very careful not to get sucked in as one day when everyone rushes for the exits and the next Black Swan day arrives, you will lose far more than by leaving some gains on the table.
Keep your powder dry and look to invest your cash in a safe, secure and liquid investment by visiting http://www.fixedratedeposits.com/.
Friday, June 10, 2011
Interest Rates
There is much talk among investors and financial experts alike that interest rates in the United States cannot fall any lower and therefore in the near term they must rise. I find this analysis flawed on many fronts and will dig into the theories below but there is a high probability, much higher than most people or experts realize, that the low interest environment could be here to stay for years to come.
The main comparison that is used is Japan. Japan has been dealing with low interest rates for decades and there is no sign that interest rates will rise any time soon. The country has been stuck in a deflationary spiral for decades with a brief respite from mid-2006 to the end of 2009 but deflation has once again reared its ugly head.
There have been plenty of theories revolving around why Japan could not exit this spiral. One issue was that monetary conditions were held too tight for too long. Once monetary conditions loosened the velocity of money was almost zero so no matter how much money was pumped into the economy the problems continued to persist.
Another issue was unfavorable demographics. Japan had and still has a very large aging population. Typically an aging population is offloading assets rather than purchasing more. This constant selling of assets particularly housing and investments can create a drag on these prices until the pendulum swings to a new generation that can absorb everything that the elder generation has to offload.
Additionally there were a couple of bubbles that burst almost simultaneously. The equity market collapsed dragging down the real estate market. Both of these occurred within years of each other mainly because the assets were intertwined as cross collateral. This deflationary pressure from asset prices collapsing formed the next issue which was weak and insolvent companies. A lot of these entities were propped up by the ability to raise additional cash from the equity and real estate markets. After the collapse they were kept afloat for a while by banks that had investments in these companies in the hopes that things would turn before they had to write the loans and investment off. Furthermore there was an inherent structural flaw in that a lot of the companies employed people for life meaning that no matter how much red ink the company bled, lay-offs were not on the table.
As the property market went so did the banks. Many were insolvent years before they were finally left to fail. This lead to an all out fear of investing in banks and undermined any confidence in the financial system. Savers moved their cash into government bonds and out of the banking system keeping government interest rates low.
Finally deflation was imported from the rest of the world. Countries such as India and China flooded the market with cheap goods fueling the inflationary spiral even further.
Turning to the United States today there are a number of parallels. The housing and labor markets continue to be weak. As much money as the Federal Reserve is pumping into the economy there has not been any significant benefit other than stock prices. Stop the printing and the market will roll over as we have seen recently.
In my view most US banks are insolvent and are only kept afloat by the accounting regulations that do not require the banks to mark their loan portfolios to market. The US demographics are skewed towards the aging baby boomer population and the overhang from the underfunded Medicare and social security programs will continue to drain government cash for decades to come.
So the question is why will the US be any different from Japan. There are a number of differences. The first one is that the United States still maintains its position as the reserve currency of the globe. While I see this changing in the future I do not see it happening any time soon. This status allows the United States more leeway in terms of money printing than any other country in the globe. This money is showing up in inflationary pressures around the globe and will ultimately pressure the inflation rate that the Federal Reserve follows. This could force the Federal Reserve to increase interest rates to stave off inflation.
The second difference is that Japan was and is a creditor nation. The United States is the debtor nation to the globe. At some point the United States will have to pay its debts back. Whether this is done in a controlled fashion or whether it is forced upon the Treasury is still in question. If it is forced on the Treasury you could see a massive spike in interest rates as they try to find enough buyers for the debt. In order to attract buyers in an uncontrolled environment interest rates have to rise and this could force the government's hand.
My assessment of the situation is that while consensus is that rates will have to rise soon I believe that there is more than a fair chance that low interest rates will be around for years to come. There may be the odd spike in interest rates, but with the level of skepticism that abounds and the fact that the baby boomer generation wants a safe return for what is left of their retirement, any spike in say the 10-year note will be met with ferocious buying that places a cap on just how high interest rates will go. So while there may be an argument for higher interest rates do not be surprised to see these levels remain in place for the foreseeable future.
On that score I have the antidote to these rates so visit http://www.fixedratedeposits.com/ to learn how you can earn a great rate of return on your short-term cash deposits.
The main comparison that is used is Japan. Japan has been dealing with low interest rates for decades and there is no sign that interest rates will rise any time soon. The country has been stuck in a deflationary spiral for decades with a brief respite from mid-2006 to the end of 2009 but deflation has once again reared its ugly head.
There have been plenty of theories revolving around why Japan could not exit this spiral. One issue was that monetary conditions were held too tight for too long. Once monetary conditions loosened the velocity of money was almost zero so no matter how much money was pumped into the economy the problems continued to persist.
Another issue was unfavorable demographics. Japan had and still has a very large aging population. Typically an aging population is offloading assets rather than purchasing more. This constant selling of assets particularly housing and investments can create a drag on these prices until the pendulum swings to a new generation that can absorb everything that the elder generation has to offload.
Additionally there were a couple of bubbles that burst almost simultaneously. The equity market collapsed dragging down the real estate market. Both of these occurred within years of each other mainly because the assets were intertwined as cross collateral. This deflationary pressure from asset prices collapsing formed the next issue which was weak and insolvent companies. A lot of these entities were propped up by the ability to raise additional cash from the equity and real estate markets. After the collapse they were kept afloat for a while by banks that had investments in these companies in the hopes that things would turn before they had to write the loans and investment off. Furthermore there was an inherent structural flaw in that a lot of the companies employed people for life meaning that no matter how much red ink the company bled, lay-offs were not on the table.
As the property market went so did the banks. Many were insolvent years before they were finally left to fail. This lead to an all out fear of investing in banks and undermined any confidence in the financial system. Savers moved their cash into government bonds and out of the banking system keeping government interest rates low.
Finally deflation was imported from the rest of the world. Countries such as India and China flooded the market with cheap goods fueling the inflationary spiral even further.
Turning to the United States today there are a number of parallels. The housing and labor markets continue to be weak. As much money as the Federal Reserve is pumping into the economy there has not been any significant benefit other than stock prices. Stop the printing and the market will roll over as we have seen recently.
In my view most US banks are insolvent and are only kept afloat by the accounting regulations that do not require the banks to mark their loan portfolios to market. The US demographics are skewed towards the aging baby boomer population and the overhang from the underfunded Medicare and social security programs will continue to drain government cash for decades to come.
So the question is why will the US be any different from Japan. There are a number of differences. The first one is that the United States still maintains its position as the reserve currency of the globe. While I see this changing in the future I do not see it happening any time soon. This status allows the United States more leeway in terms of money printing than any other country in the globe. This money is showing up in inflationary pressures around the globe and will ultimately pressure the inflation rate that the Federal Reserve follows. This could force the Federal Reserve to increase interest rates to stave off inflation.
The second difference is that Japan was and is a creditor nation. The United States is the debtor nation to the globe. At some point the United States will have to pay its debts back. Whether this is done in a controlled fashion or whether it is forced upon the Treasury is still in question. If it is forced on the Treasury you could see a massive spike in interest rates as they try to find enough buyers for the debt. In order to attract buyers in an uncontrolled environment interest rates have to rise and this could force the government's hand.
My assessment of the situation is that while consensus is that rates will have to rise soon I believe that there is more than a fair chance that low interest rates will be around for years to come. There may be the odd spike in interest rates, but with the level of skepticism that abounds and the fact that the baby boomer generation wants a safe return for what is left of their retirement, any spike in say the 10-year note will be met with ferocious buying that places a cap on just how high interest rates will go. So while there may be an argument for higher interest rates do not be surprised to see these levels remain in place for the foreseeable future.
On that score I have the antidote to these rates so visit http://www.fixedratedeposits.com/ to learn how you can earn a great rate of return on your short-term cash deposits.
Thursday, June 2, 2011
Toxicity
Over this long weekend I had a lot of time to think about things and one thing that sprung to the top of my list was toxicity or the degree to which a substance can damage an organism. To dig deeper into the definition for a moment an item that is non-toxic can cause toxicity. Consider water as an example. On its own it is non-toxic but consumed in mass quantities it can kill the plant, animal or thing that needed it in the first place. On the flip side low doses of poison in the form of say chemotherapy while completely toxic to the human body, in small enough doses have been shown to cure cancer while not killing the human. So in this instance while toxic it had a low level of toxicity.
The first place we can identify toxic materials is obvious, the garbage can. The environment is overburdened with waste and daily we spew pollutants into the environment. Now not all items in the garbage can are toxic, but combined into a sludge in our landfills the resulting gasses are certainly toxic. Fortunately our planet has a requirement for some of these gasses but overburdening the planet with too much carbon monoxide for an example is starting to create a strain on the environment for which we will pay the price at some stage in the future unless we can clean up our act. Hopefully over time we will but with the industrialization of the bulk of the earth's population in places like India and China leads me to believe that it will be many years before we can even think to get this under control. Will it be too late at that stage? I hope not but only time will tell.
The second place we find toxicity is within ourselves. We spend most of our lives harboring and building on toxic emotions. Thoughts that fester within ourselves. As we get older it seems that our minds become more and more toxic as the burdens of life cast their spell over us. How many times have you heard the phrase "crotchety old man"? This is a person who has let years of toxic thoughts take over his mind and he vents on anyone that he comes into contact with. Not a person that you would want to associate with and hence the reason that he becomes lonely and even more upset at society. The bestselling author Eckhart Tolle describes our egos as the source of our toxicity calling it the pain-body. He surmises that if we release our ego we will release the pain-body and be free from all the inner toxins. Easy to say but difficult to do.
Certainly all of us could use a good scrub of our own egos on a regular basis and I for one plan to scrub myself clean. It certainly feels good to release those past grievances and face the world through a set of rejuvenated egoless eyes. We will see how well I do with this but it is worth digging deep within our souls on a regular basis before our levels of internal toxicity overtake our being and turn us into someone that we do not wish to be. We work out furiously to keep in shape but we hardly ever work on our souls and I believe that the health of our mind is as important as the health of our body and to be honest the two go hand in hand. So do some soul searching and you will be surprised by the results. Suddenly things are put into perspective and you can think rationally and see everything clearly helping you at home and in business.
The final place where we find toxicity is in our portfolios. I would say that just about every portfolio has a number of toxic assets. Past investments that have been brushed under the rug or masked over by either throwing more cash at the problem or by hiding it from ourselves by not looking at it. Out of sight is out of mind or the denial syndrome. If I live to the age of Methuselah the asset will eventually recover and produce a profit. The head in the sand syndrome.
A far more constructive methodology is to remove the asset completely just like one would do with a cancerous cell in the body. Sell the asset and no matter how painful it is at first you will be far better off in the long-run by liquidating rather than leaving it to fester. First the money (no matter how little) can be re-invested and hopefully will produce a better rate of return. Second, once the tumor has been removed the burden of carrying the beast around on your back for years is gone and you can now focus on more positive things like making money. You are essentially scrubbing your portfolio clean and will now be able to concentrate more effectively on the remaining investments.
Every professional portfolio manager knows that it is only a matter of time before you end up with toxic assets in your portfolio and the sooner that you cut them the better your portfolio will perform. Too often the poor investment turns malignant and festers and clouds your judgment on your other investments while you spend the majority of your time "fixing" the problem. Cut those losers now and not only will your portfolio benefit but so will your mood. Make it a habit to review your overall investment portfolio with a knife ready to cut away any unneeded toxicity from your portfolio. Doing this regularly will allow you to achieve far higher results in the long-run and after a time you will wonder why you waited so long. Align yourself with a trusted money manager and create a game plan for the future but make sure that you review your portfolio on a regular basis to ensure that it is performing as required. If you need any help on this let me know and I would be happy to review your investment portfolio to make sure it is achieving what you expect it to achieve without taking on unnecessary risks.
Once these assets have been liquidated you also now know where you can find a great rate of return for your cash so explore our website at http://www.fixedratedeposits.com/ and learn more about why I believe that this is a fantastic place to put your cash.
The first place we can identify toxic materials is obvious, the garbage can. The environment is overburdened with waste and daily we spew pollutants into the environment. Now not all items in the garbage can are toxic, but combined into a sludge in our landfills the resulting gasses are certainly toxic. Fortunately our planet has a requirement for some of these gasses but overburdening the planet with too much carbon monoxide for an example is starting to create a strain on the environment for which we will pay the price at some stage in the future unless we can clean up our act. Hopefully over time we will but with the industrialization of the bulk of the earth's population in places like India and China leads me to believe that it will be many years before we can even think to get this under control. Will it be too late at that stage? I hope not but only time will tell.
The second place we find toxicity is within ourselves. We spend most of our lives harboring and building on toxic emotions. Thoughts that fester within ourselves. As we get older it seems that our minds become more and more toxic as the burdens of life cast their spell over us. How many times have you heard the phrase "crotchety old man"? This is a person who has let years of toxic thoughts take over his mind and he vents on anyone that he comes into contact with. Not a person that you would want to associate with and hence the reason that he becomes lonely and even more upset at society. The bestselling author Eckhart Tolle describes our egos as the source of our toxicity calling it the pain-body. He surmises that if we release our ego we will release the pain-body and be free from all the inner toxins. Easy to say but difficult to do.
Certainly all of us could use a good scrub of our own egos on a regular basis and I for one plan to scrub myself clean. It certainly feels good to release those past grievances and face the world through a set of rejuvenated egoless eyes. We will see how well I do with this but it is worth digging deep within our souls on a regular basis before our levels of internal toxicity overtake our being and turn us into someone that we do not wish to be. We work out furiously to keep in shape but we hardly ever work on our souls and I believe that the health of our mind is as important as the health of our body and to be honest the two go hand in hand. So do some soul searching and you will be surprised by the results. Suddenly things are put into perspective and you can think rationally and see everything clearly helping you at home and in business.
The final place where we find toxicity is in our portfolios. I would say that just about every portfolio has a number of toxic assets. Past investments that have been brushed under the rug or masked over by either throwing more cash at the problem or by hiding it from ourselves by not looking at it. Out of sight is out of mind or the denial syndrome. If I live to the age of Methuselah the asset will eventually recover and produce a profit. The head in the sand syndrome.
A far more constructive methodology is to remove the asset completely just like one would do with a cancerous cell in the body. Sell the asset and no matter how painful it is at first you will be far better off in the long-run by liquidating rather than leaving it to fester. First the money (no matter how little) can be re-invested and hopefully will produce a better rate of return. Second, once the tumor has been removed the burden of carrying the beast around on your back for years is gone and you can now focus on more positive things like making money. You are essentially scrubbing your portfolio clean and will now be able to concentrate more effectively on the remaining investments.
Every professional portfolio manager knows that it is only a matter of time before you end up with toxic assets in your portfolio and the sooner that you cut them the better your portfolio will perform. Too often the poor investment turns malignant and festers and clouds your judgment on your other investments while you spend the majority of your time "fixing" the problem. Cut those losers now and not only will your portfolio benefit but so will your mood. Make it a habit to review your overall investment portfolio with a knife ready to cut away any unneeded toxicity from your portfolio. Doing this regularly will allow you to achieve far higher results in the long-run and after a time you will wonder why you waited so long. Align yourself with a trusted money manager and create a game plan for the future but make sure that you review your portfolio on a regular basis to ensure that it is performing as required. If you need any help on this let me know and I would be happy to review your investment portfolio to make sure it is achieving what you expect it to achieve without taking on unnecessary risks.
Once these assets have been liquidated you also now know where you can find a great rate of return for your cash so explore our website at http://www.fixedratedeposits.com/ and learn more about why I believe that this is a fantastic place to put your cash.
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