What Was Warren Buffett Thinking???

Back in October, Warren Buffett invested $3 billion in G.E. Stock. It was trading for about $23/share back then. G.E. is heavy in financials and lending. I absolutely was flabbergasted that he did that, and said so. One of you commented - wow GF is now criticizing Warren Buffett.

---

G.E. is now trading in the $8 range. He invested $5 billion in Goldman Sachs when it was trading at $142/share. I was blown away by what a stupid move that was. And it hit the 50's.

---

The market responded to news as it always does. In the 3Q of 2007, Countrywide's CEO said that it would soon return to profitability, and the stock jumped the next day. The stock market is just a silly game, and it is a magnet for the little guy to lose everything.

---

Owning stocks in the U.S. has always been a really risky game, and I have always avoided it.

---

The experts don't have all of the answers - look at the "Oracle of Omaha" - he has no idea what he's doing now because these markets are made of mythical I.O.U.'s that have no value.

---

INTEREST PAYMENTS ON THE BAILOUTS

There is nearly $2 Trillion USD in above-board (that means, not a secret between the Fed and the Treasury) bailouts. This doesn't include what help GM/Ford will need to keep factories open.

---

$2 Trillion of your taxpayer dollars, which is going to try to save the economy from going. So - let's review:

---

We borrow tons of money to purchase consumer items from WalMart (China) or Mobil/Exxon/Chevron (Canada/Middle East). China then LENDS money to the U.S. so it can buy more stuff from China!

---

The U.S. Banking system collapses, and the private company that prints money (Federal Reserve) prints massive amounts of money to keep the banks LENDING you money - but they won't lend you money because all of the assets which used to be used to securitize your loans (that is - Real Estate) are collapsing.

---

So the US Government does taxpayer-financed bailout plans to revive the consumer/borrow economy. We all know that if the US stops buying consumer items, markets collapse. This is what's happening.

---

Then here's what happens - job losses mount, and these people go on social assistance (welfare, mortgage bailout plans, etc) which then adds to the deficits. These deficits all come with interest fees - and this is all fine and dandy UNLESS the U.S. GDP does not grow. And it's shrinking, and the shrinking is speeding up. Job losses are speeding up, which will add more taxpayer debt to the deficits.

---

Comparisons to the last Great Depression are everywhere, and I remember when I said it was coming I was pretty much the only guy saying it. It makes me sick that I'm right, but I was 100% sure it was coming. Now I see the collapse of the USD, and hyperinflation, massively higher fuel and heating costs, and energy blackouts throughout the U.S.

---

The President needs to bring all the troops home NOW - and to get ready to assist the freezing and the starving people.

THE BLACK DEPRESSION

The world markets are in a collapse today, and gold just hit $1,000 an ounce. For goodness sake, all of these people calling this a "possible prolonged recession" sound so silly to me. Someone is going to call this the black depression soon, so it might as well start now. Here's why:

---

I believe that the USD is going to collapse (I've said this for so long now), and when that happens - with the deficit as large as it is, and with the Fed having to buy our long treasuries (because we don't have enough customers to buy what we need to finance all of these bailout plans) the USD is going to collapse.

---

When that happens, energy prices are going to soar (since we import our energy) and cities won't be able to power lighting or heating at night. Thus, the Black Depression.

---

I really like Obama as a leader and motivator, but these bailout plans endanger the dollar and stoke inflation. I would do things a little different, I would bring the troops home - all of them, right now, and put them to work within our borders. We will need them soon.

---

Who is going to win when this is all over? You may not like this answer so let me smooth it by asking you a question.

---

There are two entities - one (A) spends more than it makes, and borrows money to live a lavish lifestyle. The other entity saves more than it makes, and lends the savings to (A) and charges them interest. Can A sustain - borrowing money forever from B? Or in the end, will B "own" A?

---

A is the USA, and B is China

The Federal Reserve Note aka The "Dollar Bill"

If you have a dollar bill, take it out right now. Let's look at it together.

---

Across the top will be the words, boldly printed, "FEDERAL RESERVE NOTE". Let's think about what this means.

---

The Federal Reserve is a private institution that has no real connection to the US Gov't. The Federal Reserve prints money. On the dollar bill, you will see it says, "legal tender for all debts, public and private". In other words, this note is proclaimed to cancel all debts. It used to be tied to gold held at Fort Knox, but now it is printed with no backing whatsoever. This is all fine and dandy so long as nobody stops to read what the note really says, or what it really means. Does it have value?

---

Sure as long as the person you give it to believes that it does. And that is why the note you are holding will soon be worthless. There are many of them being printed right now to purchase the debt that the United States is creating by all of these bailout plans. Foreign governments are loathe to buy treasury notes, (I.O.U.'s issued by the U.S. Government, backed by the "strength" of the U.S. Gov). So now, the Federal Reserve has started buying Treasuries BY PRINTING MONEY.

---

The U.S. got into this pinch by creating wealth (by leap-frogging asset bubbles... started with the dot com boom, then crash - which then turned into the Real Estate boom - then crash). Now that the collateralized asset classes have all collapsed (namely Real Estate of all types) the Federal Reserve is going nuts printing IOU's in the form of dollars to buy US Gov't IOU's in the form of Treasury notes.

---

This is complete COMPLETE madness and it cannot continue. If you think the economy is bad now with job losses accelerating and real estate price drops accelerating - it's not the drop in consumer spending that mortifies me, it's the crash of the dollar.

---

If the dollar crashes, then hyperinflation comes in. Gas at $20/gal - any importable resource goes up 10x - like food prices, etc. The U.S. has to let the dollar go weak because with massive deficits in a slowing economy, the only way to minimize the impact would be to:

---

1) drop interest rates (which is near zero now) and 2) to let inflation rage. Remember if inflation comes in - say at 10% or 20% or 200%, it reduces the debt impact because you would be paying your old debts back at cheaper dollars. But here's the problem with that. Hyperinflation would lead to runaway interest rates.

---

I'm becoming certain that the U.S. Dollar is going to collapse, and all of this other stuff, bankruptcy of GM and Chrysler, accelerating job losses, etc. will be small potatoes compared to a worthless currency.

the benevolent Chairman Mao

---

The title of this poster is "Chairman Mao is always with us". In Marxist China, religion was outlawed, but it did not squelch the need for an omnipotent ruler - someone who knows that everything will be ok, that we can assign powerful myths to, and give us just a little bit more power in a powerless world.

---

Identifying with icons helps people to align - align with a sense of belonging and congregate under a protective umbrella of a label.

---

People would say things like, "I love Chairman Mao with all of my heart", and idealize him into an idealogy.

---

In the absence of God (or the ability to worship to one) people will beatify a mortal into something superhuman. People would give their lives to Chairman Mao, and really didn't know why other than they knew that they loved him so much.

---

What do you think of the glow around the Chairman's head? Does it look familiar to anything?

STOCK RALLY ON THE HEELS OF RECORD UNEMPLOYMENT

We are in what suspiciously appears to be a smoke and mirrors economy. This to me doesn't make sense. 600,000 jobs lost, sixteen year high unemployment, and the dow goes up 210 points today, after another rally yesterday?

---

And guess which DOW component stocks climbed? Banking stocks CITI, B of A, and JPMorgan Chase. To me, this seems like the treasury is buying banking stocks. I have been watching the DOW in all of this crazy flood of bad news, and it mysteriously stays propped up at 8,000. The banks aren't lending, and this is how they make money, so what justifies a 7% increase in value today???

---

I am hearing of so many people losing jobs - I get a lot of IM's on Facebook. Stocks are another asset bubble, and I am very concerned with asset bubbles.

U.S. dependency on foreign markets

For the U.S. to come out of this, it has to work on being less dependent on the foreign markets. The U.S. buys most of it's manufactured goods from China, then China lends us the money to buy more of their goods. This is not sustainable.

---

We purchase a majority of our energy from foreign sources, who then control a large portion of our banking (e.g. Saudi's and Citi). The U.S. is basically 'owned' right now by foreign countries. If China stops buying our Treasuries (and I feel this is inevitable) we would have nowhere to go to sell our debt other than our very own Federal Reserve. In effect, we would then be printing money to then borrow it. This is not sustainable.

---

Those of you who follow my investment outlook have always heard me say that for an investment to make sense it has to have value, and the business model must be sustainable. If it doesn't have value, and only appears to have value, that - my friends - is an I.O.U. And the entire banking system right now is run on I.O.U.'s.

---

Not sustainable.

---

So what is sustainable? 1) Natural resources. In a growing world, it will always need natural resources. 2)Innovation. This is where the U.S. shines. The United States protects intellectual property and rewards its inventors. While I must say I am super happy with the E.U. in enforcing my patent rights quickly and effectively, the U.S. has a stronger culture for innovation. Having lived in France, I know that there is a healthy skepticism for people who want to start something new. Old Europe is comfortable with the status quo, and there is a wave of cynicism against anybody trying to shake up industries or ideas.

---

Here's how the U.S. can recover: 1) It has to - without resorting to protectionism - find a way to keep manufacturing within our borders (sustainable). 2)It has to become energy independent.

---

This is where I think Obama's plan has some good traction. If these jobs in the coming bailout plan spur innovation in green technology, this does two things, obviously, it reduces our energy dependence and it keeps dollars from buying exports. There is a multi-trillion dollar industrial payoff in repurposing our efforts to green technology. This isn't an overnight plan, but it is the right plan. The thing that I worry about is that the U.S. will go insolvent before the stimulus package can take hold. And with nobody to buy our Treasuries, there goes the dollar.

---

This reminds me of the Cardinals vs. the Pats. It's a race against the clock - can the U.S. change from completely dependent on International markets BEFORE the International markets stop sustaining the U.S.'s transitional funding needs? I hope so - we have to give it all we've got at this 11th hour. The alternative is we lose the country, and China owns it.

if china leaves the table...

which at this point I'm sure they will, the U.S. won't have any ability at all to fund the bailout programs, job stimulus, etc. This is a race against the crash of the dollar. The 6 trillion dollar question is this - will banking, and the underlying asset values with which banking relies on to guarantee loans - prop itself up to 2006 levels before the international investment community throws up it's hands and stops buying treasuries? The obvious answer is no - and that, ladies and gentlemen, is the crux of the problem.

---

The current banking system, based around the U.S. dollar as a reserve currency is irrepairably broken.

---

Chinese Cautious on Treasury Notes
By REUTERS
Published: January 31, 2009
LONDON (Reuters) — China’s willingness to continue buying United States Treasury securities in large numbers will depend on its need to protect the value of its foreign investments, the Chinese premier, Wen Jiabao, said Saturday. He also said that a stable yuan is in everyone’s interests.

“Whether we will buy more U.S. Treasury bonds, and if so by how much — we should take that decision in accordance with China’s own need and also our aim to keep the security of our foreign reserves and the value of them,” Mr. Wen said.

His enigmatic remarks, made near the end of a visit to Europe, could raise new concerns about China’s commitment to continue purchasing United States government debt.

Geithner's Blunder

Oh dear. Our new Treasury Secretary just really pissed off the Chinese Premier. Geithner accused China of manipulating the Yuan (which is kind of true-ish) but we have to be nice to our biggest customer of Treasuries. And Geithner really angered China with that remark.

---

Chinese people are very big on a concept called, "saving face". Dignity and honor are very big, as well as perceived respect. If you disrespect a partner, they simply pick up their marbles and go away. And this is no time to piss of China when they own $6 trillion in our treasuries but are about the only people left to buy our badly needed sales of bonds. And I fear that they just decided to save face.

---

Canadian Prime Minister Steven Harper, on his first visit to China - harrumphed into his first meeting announcing that the first thing on his agenda was to discuss China's record on human rights. What an idiot. China got pissed, and stopped buying so much of Canada's natural gas. Harper took a big one on the chin back home for that idiotic move.

---

I absolutely hated Hank Paulson. But I am nervous about Geithner's insensitivity and lack of decorum in front of a very very touchy and very powerful economic force. Right now, China is buying our treasuries because to abandon them would make the dollar collapse, and China has $6T of them. But you know what? If you insult somebody who has "saving face" as their primary value, they'll cut off their nose to spit their face.

---

For some crazy reason, the Chinese really liked Bush, and they are not so hot on Obama. This is the first time that the Chinese premier has taken the podium at Davos' world economic summit, and the first thing he did was yell at the U.S.

---

The dollar is going to crash, and it's going to take the country with it. I really really like Obama, and I do think that the U.S. has a resilient history, but other countries own us lock, stock and barrel right now.