GARY FONG'S CONTROVERSIAL BLOG

Interest Rates are likely to never go higher - here's why

2011-10-24T22:56:00.000-07:00

Why would banks need to court your deposits? With trillions of dollars of confetti money being printed in the U.S. and EU, nobody needs your money to lend to others because more can be printed.

When the balance sheet of banks get too thin on cash on hand, the Federal Reserve will "shore up" the "too big to fail" balance sheets by buying up US Government assets by creating money out of thin air, then pipe that to the big banks.

Right? If it's now commonplace to print money, why would banks offer you a big percentage rate to "borrow" cash from you so they could lend to others at a slight margin.

Banking as we know it is completely a new world. Up until the invention of all of these esoteric financial games that came with derivatives and insurance hedging against their moves, it became impossible to count money as the zero sum game that it should be. When one person spends a dollar, another person gains a dollar, and the person who spent it is one dollar short.

In today's printing of money, when a big bank is short, it just prints more to cover the shortfall. In the long run, the universe of dollars becomes lopsided because the big banks can do the stupidest things without risk, knowing that they are too big to fail. These things only end in revolution (as far as the history of democracy goes) and we're in a peaceful revolution now. When does it become violent? When there are food shortages.

And that's right around the corner.

NEW YORK Morning Sell-Off Ritual (Obvious)

2011-04-29T05:40:00.001-07:00

You might ask, If something is trading at $1,505 - why would somebody at 10am Eastern Standard Time sell a big block of that same thing for $1,494. Why not sell it at $1,505 like everybody else? Why "dump" it?

Like in my last post, I said what was going to happen in the futures markets - what happened yesterday is happening today. Somebody in the U.S. pulls a lever at the open of trading in NY, and dumps a bunch of Gold paper contracts at below market value. Why would the Fed do that? To control the cost of Gold. If gold goes too crazy, hyperinflation would then ignite, which would be the end of the U.S. dollar. The Fed would like inflation, but not runaway inflation.

The Fed cannot control the overseas markets - who buy while Ben Bernanke and his group of weirdos sleep. Yes they lose money on this trade, but they can simply print more behind the scenes. Why is the U.S. political world so worried about cutting funding for NPR? This is small beans compared to the trillions of phony money the U.S. Federal Reserve is creating out of nowhere, to be paid either with middle class taxpayer dollars or loss in purchasing power due to inflation.

Right after the wipeout sell, you'll see buying picks up right after that. This would be international buyers buying "on the dip". These games are so evident and transparent it makes me think that the Fed thinks everybody is just a bunch of idiots. Why are they being so blatant? Because they get away with it with impunity.

It's like the peeping Tom who decides to break in and steal a few panties from the hamper, who then, unchecked, graduates to throwing cheerleaders in a panel van. This is what the Federal Reserve does because it is unchecked.

The Federal Reserve must be stopped, but it's too powerful for this to happen. So it's going to take down the U.S. with it.

FEDERAL RESERVE MESSING WITH GOLD PRICES

2011-04-29T05:38:00.001-07:00

If you are one of my Facebook friends, you saw this morning what I said was going to happen on the gold market at open of the NY Futures, 9am PST. This is what I was posting (image on right). You'll see that I said at 7:35am, that in about 1.5 hours, the price of gold was going to drop at the New York opening of the Futures Market. 35 minutes after the opening bell, it dropped. Six minutes later the drop continued. Then, people who see these dips will start to buy in, and the market price should level somewhat, stripping the Fed from some cash. Lose cash did it? Well the Federal Reserve can just print some more to replace it!!!

Why does this happen? Because world markets open earlier than the US Markets. These markets dictate the world price of gold. When NY opens, the Fed dumps a bunch of paper contracts (Reserve banks still have a lot of gold holdings - we all are told to believe, but nobody is opening Fort Knox for us) just enough to trigger computerized programs to also dump. You'll see two dumps in the last chart, that is two really low sales.

Gold is a very very small market. It can be manipulated easily. If I sell a large enough order to be visible on the markets for, say, $400, then the new market price becomes $400. Right? So they do this to try to manipulate Gold prices. When NY Futures closes, and the market goes back to the world, the world goes, "oooh - bargain hunting!"

I never ever suggest trading in markets. It is a super huge time suck and really risky. But - if you did - you could make a chunk of money daily by buying and shorting based on this knowledge alone.

HERE'S MY FORECAST

2010-11-11T00:02:00.000-08:00

Here's what I see coming for the economy, and followers of my blogs will note that I am smack on in forecasting. The timing for things to happen gets extended depending on the stubbornness or delusion of the investing community. But here's what I believe strongly is going to happen in 2011-12:

Inflation - and why

The US Fed just started QE2. This completely baffles the world, (me included) as the first round was barely excusable because there was a liquidity/credit crisis. If you look at my post history, you'll see what I thought of QE1, what I thought was going to happen as a result (which it did).
Now QE2 is being used as not a lifesaver, but as a booster. The US FED is getting addicted, as if cash infusion was heroin.
We all thought QE1 was so bold, it wouldn't happen again. Then I realized - wait a minute, QE is really great for a country that is:
Deeply in Debt - If inflation takes off, as you know, loan principals are NOT indexed to inflation. So you will be paying with tomorrow's worth-less-than-today's dollars with future cheaper dollars. In this way, it actually reduces the debt burden.
A cheaper USD comes as the siamese twin of inflation. A cheaper USD makes our exports cheaper to the world (same with our labor costs) and this would then give us more jobs. Think about it - more jobs, a forgiveness in debt - why WOULDN'T the US want inflation?

The only fly in the ointment is the current currency war, and the anger that is directed towards the US completely irresponsible handling of things. The world is mad that the US is flooding dollars, which is a form of currency manipulation (tons of funny money tends to make each dollar worth that much less), and the world (especially China) are stinking hotter than Kimchee that we are accusing the Chinese of manipulating the yuan when we are absolutely doing that with QE2.

The world is not going to allow the US to be the guardian of world currency anymore as the reserve currency. USDX is measured against a basket of currencies, and as the floor is dropping off (it passed .75 which is hilarious) and the Canadian dollar just went PAST par. This is before the second wave of quantitative easing actually has hit. People say, oh the market is pricing in QE2, but this is different. This is a loss of credibility.

BANK OF AMERICA RE-REMICS

2010-10-17T14:48:00.000-07:00

This makes me mad. The banks have invented a new thing called a "re-remic". This is yet ANOTHER mortgage back security - repackaged into AAA bonds!!! D&B are rating these things at AAA even though they are TOXIC mortgages. They simply repackage junk bonds and "christen" them as AAA. Don't believe me? click here

The banks like B of A and JPM are doing this because 1) they can and 2) they need to. After the mortgage meltdown global regulators required that the banks keep a certain amount of healthy capital vs. their toxic assets. So what did they do? Simply take the bad stock, repackage, and call it good stock! AND FUNDS ARE BUYING IT.

The US keeps doing the craziest things. The US Federal Reserve is now saying they want inflation. The fed doesn't want inflation, you do. In a way. If inflation spikes, then the loan you have now for $100 will go down by the rate of inflation because your debt is fixed, but the future dollars will be worth less. This is great for a country in a 15 trillion dollar deficit (pay back the world with cheaper dollars) and with not many jobs (because we can export our stuff for cheaper, leveling the playing field with labor costs). However, just know that this will cause 1) interest rates to rise and 2) your retirement funds, assets in USD will get really low. So the bottom line is, this would be a good time to have debt (as an F.U. to the banks) and a BAD time to have US Dollars or USD backed assets.

Your U.S. Tax Dollars at work

2009-10-14T23:07:00.000-07:00

Cost of bailout is in many trillions of dollars. And job losses are on the rise, and the USD is falling.

Bloomberg just revealed that Geithner's aides earn millions of dollars through Goldman Sachs and Citi, etc. And now we find out that Hank Paulson was calling the CEO of GS multiple times per day from his office.

The entire thing has been a complete robbery of the Treasury (your tax dollars and your debt) to make Wall Street and most importantly the banking stocks skyrocket.

This will all come out in the open eventually.

Democracies usually last about 200 years - then the powerful figure out how to get the common people to vote towards their own interests. All of you who watch FOX (except for Alexis Glick, she's open-minded) and are programmed to vote alongside the special interests, they thank you. (see chart below)

TWO SIMPLE QUESTIONS

2009-10-07T23:16:00.000-07:00

The more confusing the financial world gets, the easier it is to understand and forecast by my two very simple rules in evaluating an asset's future. Only two questions to ask:

1) Is the value real or perceived? 2) Is it sustainable?

Apply those rules to residential real estate in 2006. How about the dot com boom?

These asset bubbles have grown and collapsed basically because question number one fails. Up next for evaluation? The U.S. Dollar.

One thing about the internet, is it never forgets. And if you look back at my xanga blog and even this one, it looks like I can see the future with amazing clarity. It's not that hard. You don't need financial analysts at Goldman Sachs or the Federal Reserve's propaganda to confuse you with their ridiculous forecasts that make the subject of youtube comedy videos.

You can always steer clear by my two basic questions. Yes the world economy is beginning to grow, especially the emerging countries. This is because the world is repurposing itself away from the U.S. consumer. China is going to take all of that manufacturing capacity and it is going to be absorbed by the urbanization of the 1 billion rice farmers who have yet to turn a car motor or eat a tortilla chip. That potential market is 1) of true value and 2) sustainable.

The U.S. consumer, with double digit unemployment, and a government with a debt that is equal to its GDP has no true value (for China's manufacturing infrastructure or for other world exporters to plan on) nor is its growth sustainable. For the U.S. to go saying that it is part of the world's recovery party but it's going to be "muted" is daydreaming.

I like life simple. And applying simple, common sense formulas to complex problems gives me a lot of clarity. And if you look at my investing record, the clues as to how I got here is simple. Two simple questions.

china vs. the U.S.

2009-04-09T08:02:00.001-07:00

The trade gap in the U.S. is shrinking, meaning that the difference between what we export and what we import is smaller. We are going to wind up in a trade war with China as we run the printing press 24/7 to buy our own Treasuries so we can pay off our own debt because China just doesn't have the appetite for U.S. Treasuries as it has in the past.

I read Obama's "The Audacity Of Hope" and he is very strongly against the artificially low yuan. He feels that it gives China an imbalance in jobs, and he's right. So, because China is holding so many of our Treasuries, we're going to pay them back in cheaper dollars, screwing them in the end.

China hates this, and is now looking for a new world reserve currency that is not dollar based. This will take the legs out of the USD, and inflation will crank, and the USD will tank.

The good news is we won't be buying imports, it may spur more job growth, and all of the Americans who are massively in debt will see their debt levels shrink in proportion to the inflation rate. That is all the gamble, and it's really obvious where it is going.

Hyperinflation.

Quantitative Easing

2009-03-23T04:16:00.000-07:00

I am absolutely flabbergasted at Bernanke's comments that the US economy is going to recover in 2010. And that Kenneth Lewis of B of A said that Jan and Feb were profitable quarters.

B of A is in no possible way profitable unless it ignores its' writedowns. ARRRGH.

The U.S. has entered the most ridiculous era of printing money out of thin air, and then buying its own Treasuries. In other words, it is printing money to lend to itself to bailout itself!!!

The USD is just another asset bubble in a musical chair world of finance where one asset bubble replaces the other. First it was dot-com, boom and bust. Then it was real estate - boom and bust. Lately, the USD got oddly strong, and it's undoubtedly going to crash, causing inflation.

This actually is super super smart for the U.S. to do, because China artificially suppresses its currency to keep exports strong. It then took all the extra profits it was making from U.S. exports, and lent it to us to the tune of a trillion in Treasuries. Well guess what, China... the U.S. - if it goes into hyperinflation (which it will) will pay back with worthless future USD. That is like the ultimate F.U. to China, and honestly, China deserves it.

Whenever you are massively in debt, inflation helps you because your loan payback amount is fixed - not indexed to inflation. When the USD becomes worth less per unit, the relative size of the debt goes down in a percentage matched with inflation. It's brilliant actually, and inevitable.

Of course, this then bankrupts the U.S. but it already is. The only reason operations and bailouts are continuing is because the U.S. now is lending money to itself by printing money.

massive drop in U.S. Dollar coming

2009-03-19T22:38:00.001-07:00

Today gold skyrocketed, and the USD dropped substantially. This is because the Federal Reserve announced that it would buy U.S. Treasuries.

I have been saying for such a long time that what makes me so nervous about the U.S. is the collapse of the dollar, which I am sure is going to happen.

I feel like I'm sitting in the past, remembering what it was like when the USD was the world's reserve currency, and when it had value because China needed it to be lofty to help China with exports.

I am completely against these bailouts, but today in the President's speech, he made his pitch for why trillions of dollars have to be injected. He said if the consumer stops spending, and business stops spending, and the government stops spending, it all spirals. But what he's doing is betting that the world will still put a blind eye to the fact that fiat currency is completely only worth the perceived value of its buying power, and nothing else. Gold's price has been supressed for two big reasons -

1) Reserve banks are selling to keep market prices low and 2) Gold paper contracts are as worthless as the dollars are becoming. Gold paper contracts are traded like securities, with the ability to place naked short sells. In this collapsing house of cards of paper money, the only thing that will have any value really would be commodities.

federal reserve buys $300 billion of long term treasuries

2009-03-19T10:59:00.000-07:00

I have been blogging a lot about my observation that China will soon not want to buy U.S. Treasuries. U.S. Treasuries are how the government borrows money to pay for all of these bailouts. I described a situation where China gets sick of the risk of a country that is going down the tubes, and puts their $ somewhere else. The chart to the right is what happened to the spot gold price today. Yesterday it took a drop below 900, then skyrocketed. The U.S.D. took a similar drop against world currencies, and Bernanke is sacrificing the dollar, like I knew he had to.

The reason China has not been ditching the U.S. is because if it did, the U.S. Dollar would tank, thereby making importing of chinese goods much more expensive. So China and the U.S. were in a little mexican standoff, but with one big difference. China has the advantage of a billion rice farmers that have not been urbanized, and a much cheaper labor force. Oh and did I mention massive amounts of cash?

Yesterday, to me was about the craziest (expected) news I've heard since Bear Stearns collapsed. Back when Bear went down, I said that this day would affect us more than 9/11 because of the fact that investment banks absolutely could not keep open because of their massive exposure to subprime losses.

Yesterday, the Federal Reserve (aka the printing press) said it was going to buy $300 billion of U.S. Treasuries.

THE U.S. IS PRINTING MONEY TO PAY BACK FOR DEBTS IT CANNOT AFFORD TO PAY - THIS IS A HUGE IMBALANCE PUSHING TOWARD A DRAMATIC DROP IN THE U.S. DOLLAR AND HYPERINFLATION. HYPERINFLATION IS GOOD IF YOU HAVE MASSIVE DEBT BECAUSE YOU PAY BACK YOUR LOANS WITH WORTHLESS DOLLARS.

This is what this is like. It's like a starving man cutting off his own foot, and making a stew. He will live a little longer having eaten his own foot, and he has another foot to eat if he needs to. He still has two hands which are important, but he will be walking around on ankle stumps. He will never be the same. He will die, and somebody will move into his apartment, clean it up and start over.

Someone stronger and with two feet. The apartment is the United States, and the somebody else could most likely be China.

if i only played stocks

2009-03-11T19:55:00.000-07:00

I don't trade stocks, nor do I own them. I have always had the belief that investments should not be made for purposes of cash flow. Investments should be made for growth. And buying stocks makes you focus your timing decisions on frustrating fluctuations. That's psychologically a handicap when investing.

Therefore, knowing full well that the stock for Citibank is completely fixed and bobs at the machinations of the specialists, I would COMPLETELY short Citi in times like this. First of all, Citibank is going to go tits up.

Do you know what also drives me batty? Kenneth Lewis, CEO of B of A - today said that biz was good, and the stock jumped. This reminds me of when Angelo Mozillo said that Countrywide had a "kitchen sink quarter" (as in, everything bad got thrown at us except for the kitchen sink - as if that makes any sense...) and that Countrywide would return to profitability in the next quarter. PEOPLE BOUGHT THAT STOCK FOR 29 AND IT'S WORTHLESS NOW.

The same thing is going to happen to Citibank, but I won't short stocks. It is highly risky and a stupid, stressful thing to watch.

AIG

2009-03-08T23:11:00.000-07:00

I'm sitting here trying to figure out the impact the likely demise of AIG is going to have on the world economy. I can't even imagine what is going to happen when AIG goes. And it's going to go because its survival is unsustainable.

They traded in a thing called credit default swaps, or in other words, insurance for stupid investments. And their leverage was almost infinite, and its survival depended solely on REAL ESTATE GOING UP. Heck it hasn't even stabilized.

At GFI, we are planning for hyperinflation and I am exploring an option of indexing prices daily. If inflation takes off, we're going to have to adjust our USD pricing to match the drop of the value of the dollar in order to keep current with supplier costs, etc.

AIG is going to collapse, and honestly - I can't even imagine what mayhem this will bring. But it will be far greater and far deeper and far longer in duration than the Great Depression.

the plunge protection team at work!

2009-03-06T17:25:00.001-08:00

If you aren't familiar with "the working group" here is the wikipedia link.

If you look at the daily charts, there will be a massive bomb of orders close to closing time, focusing on the bank stocks and other DOW indicators.

It's your Federal Reserve and Treasury, working hand-in-hand, teaming up to make your USD worth less and less as this house of cards gets stacked higher and higher.

I'm just amazed at how bold-faced this crap is.

violence follows massive job loss

2009-03-05T22:27:00.001-08:00

When I first heard the song, "Lives In The Balance" by Jackson Browne, I cried. I pictured vividly the face of Dick Cheney as I heard this song:

Ive been waiting for something to happen
For a week or a month or a year
With the blood in the ink of the headlines
And the sound of the crowd in my ear
You might ask what it takes to remember
When you know that youve seen it before
Where a government lies to a people
And a country is drifting to war

And theres a shadow on the faces
Of the men who send the guns
To the wars that are fought in places
Where their business interest runs

On the radio talk shows and the t.v.
You hear one thing again and again
How the u.s.a. stands for freedom
And we come to the aid of a friend
But who are the ones that we call our friends--
These governments killing their own?
Or the people who finally cant take any more
And they pick up a gun or a brick or a stone
There are lives in the balance
There are people under fire
There are children at the cannons
And there is blood on the wire

Theres a shadow on the faces
Of the men who fan the flames
Of the wars that are fought in places
Where we cant even say the names

They sell us the president the same way
They sell us our clothes and our cars
They sell us every thing from youth to religion
The same time they sell us our wars
I want to know who the men in the shadows are
I want to hear somebody asking them why
They can be counted on to tell us who our enemies are
But theyre never the ones to fight or to die
And there are lives in the balance
There are people under fire
There are children at the cannons
And there is blood on the wire

Hummers are selling like hotcakes in Iraq. The Iraq economy is booming, and there are nouveau riche with enough discretionary dollars that they are buying SUV's, just like the USA in 2006. However they aren't in debt like we are now. Read this article!!! (CLICK HERE)

Obama needs to bring the troops home now, from all foreign countries, and prepare for violence. When the bank kicks you out of the home, and there are no soup lines like the last great depression, violence will break out.

when will housing recover?

2009-03-05T16:42:00.000-08:00

To those of you who have followed my blog for years, you'll agree that I've been remarkably accurate at financial forecasting. I told you a couple of years ago that Citigroup was hopelessly overleveraged, and now that it has gone below a buck a share, it's going to get nationalized and anybody who owns the stock will lose their whole investment.

I hope I had saved some of you from buying financials back when I said it was ridiculous. My investing forecasts come from really really simple rules, that I've explained before - and they cannot be broken. I may not know the exact day something is going to happen, but I'm smack on sure that imbalances will resolve in a certain way with a certain severity. It's like weather forecasting. They find out where the "high pressure zones" are, and they know from that where the wind will blow. Same with finances, and I was watching on the Las Vegas news and though prices are nearly half what they were in 2006, the newsman said that prices should recover to their 2006 prices within two years.

Bull fucking shit. You dumb ass bastard. You have no fucking idea what you are talking about. Real estate prices - when they hit bottom, they stay at the bottom for a long time. Bottoms are not like peaks. Peaks hit in a day then bob down, bottoms stay shitty for a long time before they start to buoy up due to pressures like 1) a growing economy or 2) a growing demographic. NEITHER ARE COMING ANY TIME SOON - and real estate prices, are not going to reach 2006 levels for at LEAST another 45-90 years. In fact, Real Estate is going to drop probably another half - OR MORE.

I am just absolutely sick of people saying that things are going to be fine soon. I'm running off to an appointment, or I would say why things are not going to be anywhere near fine in the U.S. for at least 45 years - if ever, and I am 100% right. I am very sorry to say this - China will be fine! But the next to go will be the USD, and with that will go everything else. I'm sorry! But it's true!

About The Market Collapse

2009-03-02T08:51:00.000-08:00

I am headed to Vegas and I have a really bad flu bug but I wanted to chime in here about the world markets.

The stock market is not a true indicator of what is going on, because the market will bob up and down. What creeps me out bigtime is that AIG needs more money to survive. AIG cannot be saved, even though we did a massive bailout of it - because it wrote insurance for derivatives that were leveraged 20:1, and all of these policies are worthless.

AIG participated in a thing called, "credit default swaps" something even more stupid than subprime lending, more stupid than mortgage backed securities. Bear Stearns collapsed because of the derivatives, and couldn't be saved, and AIG is needing this money for operations. However, it has no sustainability. If AIG goes, (and it will), then THAT will be another Bear Stearns moment. I said in the other blog on the day that Bear Stearns collapsed, it will affect our lives deeper and longer than 9/11. AIG collapsing will make a complete meltdown and devastation of the world economy. If you think this is bad, I am positive that these are good times compared to what is ahead.

Short term- GM, AIG fail. Then, Citigroup and B of A go. Ford and GM around the same time. The USD collapses, and hyperinflation kicks in, with the U.S. going insolvent. Job losses hit 25%, and this time the U.S. is insolvent so there can't be social programs to rescue or protect people. In the last depression, there were soup lines. In this one, who is going to provide assistance? I am so glad I don't have stocks right now.

The world economies are collapsing because of "emperor has no clothes" quality of fiat currency. My advice - enjoy these days right now and put your game face on because we're really going to have to be versatile, calm and strong.

2009-03-02T01:06:00.001-08:00

What Was Warren Buffett Thinking???

2009-02-28T19:03:00.000-08:00

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

2009-02-21T18:26:00.000-08:00

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

2009-02-20T10:20:00.000-08:00

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"

2009-02-08T23:40:00.000-08:00

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

2009-02-07T09:50:00.001-08:00

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

2009-02-06T11:11:00.000-08:00

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

2009-02-02T21:08:00.000-08:00

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...

2009-02-02T14:40:00.001-08:00

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

2009-02-01T21:02:00.000-08:00

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.

the great depression lasted 18 years

2009-01-31T10:18:00.000-08:00

We are facing some challenging times that will test what we are made of. I've been preparing for this for quite some time. The media saying that this "recession" is going to last at least through the year are dreaming. This one is going to be 45-90 years, probably more.

It is going to be a very tough time for Obama. Bailout plans have a history of not working - the U.S. didn't recover because of FDR's new deal, it recovered because of WWII.

During the last Great Depression, while there are differences to today's situation that makes it impossible to make a side-by-side comparison, the main cause is that the economy went too happy (roaring 20's) based on I.O.U.'s. There was not enough underlying value to justify the consumer spending. Then the party was over, and the world went through a period of "reckoning".

People then were saying this is the end times too, and that Jesus was coming. He didn't come then, he's probably not coming any time soon, or at least I wouldn't "bank" on it.

An entire generation lived through soup lines, and in this case there will be two generations fighting for the soup.

I am very very sorry, I am watching the world economic numbers, and the banking system as it stands, is insolvent. We are all running on IOU's, and the stimulus plans worldwide are printing IOU's like crazy, further propogating the devaluation of currency.

I haven't been saying much about gold lately, but if you look it is nearly $1,000 an ounce. I know it sounds crazy, but I'm pretty sure as I sit here that it will hit $3,000 and once it gives way, could go to $10,000/oz.

ted haggard on publicity tour

2009-01-29T19:27:00.000-08:00

This man was once the top evangelical Christian leader in the United States. He then lost his lofty position after he admitted having a relationship with a male prostitute, who bought him crystal meth.

He was just on Oprah, talking about his struggles with homosexuality. He insists he's not gay, even as word came out that his church paid a six-figure hush money settlement to keep mum about his inappropriate relationship with that young man too.

The amazing thing is he was a leading advocate against gay rights, and now he's doing publicity about his fall from grace and claims to be "completely heterosexual".

Why doesn't he step down from the spotlight and stay down? Why does he do this to his family, and his own dignity?

A Quote From Karl Marx

2009-01-25T16:46:00.000-08:00

I read Das Kapital in my 20's, and though the book was partially responsible for a disaster in human history, at the time I read it, (and if you read it) the book is actually convincing in it's simplicity. One would think - this socialism actually could work!

But open markets have taken over - or have they? Will Marx be right in his prophetic quote?

"Carl Marx 1867
"Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalized, and the State will have to take the road which will eventually lead to communism. (Das Kapital, 1867)"

mad about leaving in a wheelchair

2009-01-20T20:44:00.000-08:00

Natural Harvest - "Semen Based Recipes"

2009-01-17T11:24:00.000-08:00

This needs to be filed in the "it's a big world, and there are a lot of people in it!" file. Ooops I just burped! Smells like chlorine - what's in these oysters?

in london, a hugely successful ad campaign

2009-01-13T01:04:00.001-08:00

I was reading an article in the L.A. Times today about this author who started an ad campaign in the London tube. He asked for donations to spread the word, and wound up getting $135,000 in contributions

It appears that atheists want to be heard in the U.K.

I will be in London in a few days, so maybe I will see these billboards. I am all about free speech, and I myself don't think I will be at a point where I don't believe in God. It is too wonderful a feeling having a belief that somewhere in the great unknown that some being loves every cell of me, besides my wife and my dad, and my auntie (those come to mind right away, I'm sure there are others)

I do know some atheists, and they make far more sense than any other identifiable group I know of. And they should be able to exercise their beliefs like ad campaigns.

Surprisingly, a poll of college students showed the greatest increase in belief systems are veering toward atheism. The more advanced a society is, the more tolerant it is of beliefs that differ. That's what used to be great about the U.S. and can't help but wonder how this ad campaign would fly in Flatbush, TX.

"create your own economy"

2009-01-10T12:13:00.000-08:00

I think this is a great phrase for these times. I cannot control what Hank Paulson gets away with, but I can try to stay a step ahead. Creating new and flexible ways to earn money and decrease costs is a good idea in an economy with job losses stacking up and consumer spending dropping.

All of these things going on (and what is coming next) was all fairly easy to see coming in one form or another. Now would be the time to "de-couple" from the economy by putting some thought into "creating your own economy". I admire those that do.

We need China to buy our Treasuries!

2009-01-09T21:33:00.000-08:00

524,000 jobs lost last month - biggest drop since 1945

2009-01-09T13:04:00.000-08:00

I did not understand the new year's rally at all. The fundamentals of the economy start with housing, which leads to consumer spending. Both are dropping with the radically down holiday retail numbers. And the first thing that happens in New Year's is the market rallies.

When the DOW went over 9k, I just couldn't understand it. I think the true value is somewhere around 4,000. Whenever I hear people say, "Now is the time to buy stocks" I just cannot understand from what angle this perspective comes from. Job losses, plummeting house prices and decreased consumer spending does not spell a market recovery any time soon. Markets on the bottom stay low and flat for a while - there is no instant jump to higher numbers. Market tops hold briefly, but bottoms stay low for a really long time.

I would wait for the dow to hit 4,000 before I would think it has hit bottom.

Job losses are less resilient than housing. It's like the final whiplash of a bad economy, and the crazy part is job losses are increasing. At this rate, the U.S. should hit double-digits in no time. 2008 was the worst job loss year since 1945 (2.6 million jobs) and it is accelerating and that means double digits in no time.

I can't believe a single person ever voted for George Bush, especially in the 2nd term.

Why Inflation Is Desirable To The U.S. Economy

2009-01-06T21:20:00.000-08:00

Whenever there are huge debt loads, inflation kicks in as a helpful aid to lowering debt. It's simple. If the dollar is devaluing, you pay back in new, cheaper dollars.

So say you owe $15,000 on your credit card right now. If inflation kicks in, say it goes up 20%, then your 15 grand just became a 20% smaller burden on you. You would pay it back with today's devalued dollars.

Now, say you are a government with a 14 trillion dollar debt ceiling. Inflation at 20% would reduce your load by almost 3,000 billion dollars.

For a while, I was pretty puzzled why Obama would propose a stimulus plan, and why he would hit the treasury up for more printed dollars to create jobs. It makes sense. Doing so would increase inflation, reduce relative debt loads, and also spur consumer spending and jobs. But undoubtedly at the cost of the strength of the dollar.

I can see why he does it, and I can see the risk to the uninformed investor. The U.S. could go bankrupt doing this, and all that is needed is for that to happen is if international investors stop buying U.S. Treasuries. But they won't abandon treasuries because if the dollar plummets, their previous debt gets paid back in increasingly worthless dollars.

So the U.S. economy and the world are in a mexican standoff. $6 trillion in treasuries owned by China. China is buying up Japanese yen (thus the increase in the yen). If China abandons buying U.S. Treasuries, the U.S. could go tits up, and then China loses six trillion.

Gary's daily scripture reading - this one from Deuteronomy 15:1-3

2009-01-04T11:48:00.001-08:00

Hamas, Israel and Iran

2009-01-03T20:19:00.001-08:00

Today ground Israeli ground forces started marching on the Gaza strip.

Americans are hearing about it, but nobody really cares. I care.

The reason I care is because Iran is very very very anti Israel. And George Bush is very very pro Israel and very anti Iran. This is still in the embryonic stages, but I've said in the past that Bush really wants to go after Iran, and he's running out of time.

With Israel marching into Gaza, this will whip Iran into a frenzy. (click here to see what I mean). With Iran starting to roar, It will get involved on the Hamas side, and go after Israel. If Israel has some really unfortunate civilian casualties, that will be a P.R. coup for Iran to justify strong action against Israel.

And because the U.S. has (i believe rightfully) called Hamas a terrorist organization, and since the U.S. has declared war on terror, it will defend Israel against Hamas. Iran doesn't have nukes, thank goodness, but neither did Iraq. And look what we did saying that they 'might' get them someday.

Bush will pound his war drum saying that Iran must be stopped. What if a little nuke goes off before inauguration? Bush calls for a postponing of the inauguration due to national security issues, and we have a hell of a mess.

If you frequent my other blog, I've said that I felt pretty certain that the U.S. would be in a conflict with Iran before Bush is out of power. These are the stepping stones. I see it like this. With every palestinian life lost, Hamas will vow ten Israelis in retribution. With every ten Israeli lives lost, it will go after one hundred Hamas in retribution. This thing is not going to end any time soon, and Iran and the U.S. are ready for any excuse to go after each other.

I wish they could move the inauguration date up, because with respect to Obama being sworn in, I'll believe it when I see it.

2009

2009-01-01T11:50:00.000-08:00

I remember last year like it was yesterday. We had some friends over here at the ranch, and we all sat in the theater and watched Dick Clark's New Years. We all looked aghast at each other as the perpetually young Mr. Clark burble and babble, the unfortunate victim of a stroke. It was hard to watch, and amidst all of the hooping and hollering all of the revelers were doing at Times Square, I honestly wondered if they knew what 2008 was going to bring.

2008 is like when you discover a leak on your boat, and you know it is starting to gain water, but you don't know where the leak is, nor would you have the tools to fix it once you found it. We found the leak, and the leak was easy credit and a complete abandonment of reasonable expectations.

2009 is the year the ship sinks. There are 4 million homes about to enter foreclosure, and massive tax bailouts for companies that aren't viable. 2008 was the worst year in the stock market in 70ish years (since the Great Depression) and both job losses and house price losses are accelerating.

The world should not be about money and number of ipods or the latest cellphones, and this is a massive whap on the head reminder. But the loss of homes, retirement funds, insurance coverage, credit card use, etc. is not the reason 2009 is going to be a hell of a year. It's because of instability.

As I write this, Hamas and Israel are in full-scale attack. People are dressing up like Santa and shooting families. A woman who was about to have her home taken set it on fire with herself inside. The reason this happens is because people have lost hope, and feel that there are no options.

I submit that 2009 will be a far easier year to handle if you expect the absolute worst to happen, and lower your expectations drastically. I have a good idea what the markets and economy is going to do, and I'm pretty sure what is going to happen to the U.S. Dollar. And the loss of jobs. If you play this scenario in your head clearly, two things will happen: you will strike a balance between being prepared for tomorrow, as well as enjoying today because disaster hasn't really struck in full-force yet.

So for pre-visualization, here's what I expect for 2009:U.S. Real Estate - half of today's value. Stocks - hard to say. USD - collapse a lot. Job losses - huge.

So having said that, doesn't today feel like a comparatively nice day?

SO CAL REAL ESTATE - 81% DECLINE - 5 FIGURE ZIP CODES

2008-12-30T11:39:00.000-08:00

This was a crazy post on the "Real Homes Of Genius" Blog.

This blog has been an incredible documentary of the crazy U.S. real estate market, and the crash. It is painful to watch as homes in California are now hitting the five figures in some zip codes.

So the question sometimes comes up, "Is now the time to buy?" My answer is no, because there are still four million delinquent mortgages that are about to go INTO foreclosure (only 2 million have hit so far) and prices are going to keep going down.

If it was possible to sell, it would be a good time right about now, but it would probably not be possible without a huge loss.

So when will the market hit bottom? Bottoms of real estate markets stay down for a while - not like tops in asset bubbles when you can almost call the day that it topped. It flattens for a little while, then sellers don't wake up to the reality, and then panic goes out, and then markets collapse.

In 2005, a home in Palmdale probably went for mid 300's, now it is in five figures. 81% drop in values, and I don't think that's near the bottom.

I don't think it is ever good to try to time a top or bottom, because nobody really knows the day, and if you're stuck as it's falling, you can't get out.

THE POWER OF POSITIVE THINKING

2008-12-27T17:34:00.000-08:00

has different meanings. When I hear motivational tapes, telling people to focus on the positive, to me, that is delusional. I would rather focus on indicators.

I can think positive all I want. I can think positive thoughts that the real estate market is not going to drop dramatically in 2009. But that would ignore the simple fact that 2 million homes have hit foreclosure, four million are in default and about to hit the market, which at liquidation prices will make comparables go down further. Add to that the fact that there are still a lot of mortgages that are going to reset in Q1, 2009.

So I could blow a bunch of sunshine and say, "Hey, think positive! It's going to be fine!" and pretend it. Or I can see the undeniable imbalance of supply to demand in U.S. Real Estate.

I think positive. I am pretty positive that U.S. real estate has really only begun to collapse, and that the U.S. dollar is going to crash. I'm positive of that.

FINANCIAL ADVISORS, SHOULD I GET ONE?

2008-12-27T17:21:00.000-08:00

I got an email from a friend the other day, asking for a referral for a financial advisor. My advice is to never use one.

I have never used financial advisors. I have talked to them, but honestly - and this is really really the case - they usually do not know anything. They will show you charts and graphs, but with the disclaimer, "past performance is no guarantee of future results".

Far better to invest with a few basics in mind:

1) "forecasting is simply determining where imbalances will ultimately resolve"
2) an investment class either has value, or there is a belief that one exists. The second case is very dangerous
3) Never ever invest amounts that you can't completely lose without losing a night of sleep
4) Never - ever - invest using leverage (option accounts, margins, hedges, derivatives)
5) When you invest, consider that money gone forever. Just like blowing it in Vegas. That way you won't care if you have to go long. Investing for cash returns is just like gambling in Vegas
6) Never buy stocks, especially in the U.S. People who buy stocks always try to time the market, and put far too much money into their bets. Far better to ask yourself what is out of balance, and then invest in that.

Financial advisors know only what the company newsletter tells them, and that news is provided by their "research" teams with buy/sell recommendations. These people are in the business of selling you their products.

This was a really thought-compelling video:

2008-12-24T22:43:00.000-08:00

This is where I'm going to put the upsetting stuff

2008-12-24T22:34:00.000-08:00

The other blog is the happy blog.