Wednesday, August 3, 2011

So Where Do We Go From Here?

My wife was posed this question the other day, by a friend and client who knows what I do, regarding this debt ceiling fiasco. I liked it so much it has become the title of this post.

So yes where do we go from here now that we have avoided Armageddon by raising the credit card limit?

Well, first, does it bother anyone that we have paid for nothing. Now you can listen to the brain trust of the Administration, or the Ivy league educated PhD's in ponzification who have infested Wall St. and frankly much of corporate America about how things are fantastic but does it really count for anything when you ask a ponzi master to outline or recount the ponzi?

It is extraordinarily difficult to acknowledge something as simple as the fact that when you are living on your credit card to survive you are finished, most expecially given the belief in American exceptionalism. Mathematics doesn't give a hoot about exceptionalism. Compound interest doesn't give a hoot about exceptionalism. And sadly, 2+2 does not equal 6 no matter how many Canali wearing, daddy set me up frat boyz tell me it does.

The fact is that easy credit, free money, that nobody ever cared would get paid back has fundamentally altered the structure of the economy. Did you come home one day to a house that had brand new
  • big screen TV
  • washer and dryer
  • blueray dvd
  • apple computer
  • dishwasher
  • pool
  • finished basement

Of course not. People accumulated those types of things over time. They saved up and then they bought. Not anymore. Princeton MBA finance means you can fog a mirror you can have a loan. Sadly the piper is here to be paid and the vast majority's pockets are empty. Think about it for a moment. How would you expect it to work out given we borrowed to sustaind the facade of prosperity? You really want to ask a Wall St. strategist how it plays out? Might as well ask your 4 yr old.

People want answers as to how to fix it. People want it back the way it was.
Are you kidding me?
How about I ask how do you fix a heroin addict? An alcoholic?

Giving them more product like the connected Ivy league genius's at the Fed recommend in perpetuity? Again, common sense applies here, even if the PhD's tell you it doesn't.
How about cutting them off the product? I realize cutting them off is politically incorrect, is juvenile, is sophomoric but sadly it is spot on.

The unfortunate remedy here is austerity. I realize austerity is the bogeyman, the Michael Myers of Wall St.and high finance. He interferes with bonus's (the brokers not the customers), with mid life crisis yellow Ferrari sales, with 2nd homes in the Hamptons, and with the trophy wife market which is why it is so vehemently opposed by the ponzi preserver, crumb chasers of Wall St.

Did I mention jobs yet?

I was in Kansas City this weekend visiting some family. I had the opportunity to visit my first Coldstone Creamery. Fantastic place but this is the type of jobs we are creating. I love Chick-Fil-A, was almost the 100th customer of the day for lunch when there!! But, again, this is the type of jobs we are creating.

Let me ask a question regarding jobs? Who has more economic utility. A David Kelly chief strategist at JP Morgan type, overseeing 400 odd billion in assets, or a dog groomer at Best Friends Pet Care?

Speaking of wonderful jobs look at the Dunkin Donuts IPO. It is a perfect analogy for this stock market. This is the only type of IPO we can muster given the Bernie Madoff economy we have created. Is there an IPO anymore, which would pop, by an outfit that makes anything anymore, Oh yeah I remember one. A 123 Systems, just make sure you don't look at the stock price though.

The analogy with the stock market here is the hole in the middle of the donut. Don't believe me? Watch closely how the bids disappear in this market the nano second someone wants to sell in size. For those that are sober enough to even care, I suggest you revisit the NYSE circuit breaker rules. Further to this some of you may have missed the Glass Theatre Analogy piece I ran a few months back written by a random reader of Rick Ackerman's blog put forward regarding the subject of selling and to whom.

“The biggest problem, getting back to Galbraith, is that in the process of facilitating sellers, all the new technology does not produce any buyers. I know most will disagree with that, but keep in mind that demand is a state of mind. It runs away at the first sign of trouble. Put another way, the same emotions that motivate sellers cause potential buyers to hold off. Sell is preordained, but buying requires a complex greed analysis. Which leads me to my “glass theater analogy.” We are all familiar with the most common analogy for panic: when someone yells “Fire!” in a crowded theater. The problem, of course, is that there are 50 rows of seats, but just two aisles leading back to two doors on the back wall. Grown men and women may trample small children to escape getting fried.

There are a couple of problems extending that analogy to the stock market, so I made some changes in my “glass theater analogy”. The biggest problem in the market is that, even if you choose the aisle seat, last row, you can’t escape unless you can find someone to take your seat. As Galbraith pointed out so many years ago, you can’t be a seller unless someone else will buy. (What a dirty little secret!). Another big problem, considering the speed of the technology today, is the basic transparency. It’s as though the back wall of the theater were made of glass, and all the potential patrons can see what’s happening inside. It’s right there on their screen! Who is going to take your seat when they can see the carnage going on in there? Which leads me back to last week’s mysterious plunge. First of all, remember that reading Alan Abelson the Saturday before the 1987 Crash, he indicated we had already had it with the 230-point drop the week before. The newspapers last weekend sounded a bit like a post mortem too. “The SEC is trying to get to the bottom of it.” I can save them the trouble. What do you expect when your weapon has a seven cartridge magazine in the butt compared to a single load, wad and ball. You get 1000 points in 15 minutes. Wait until the human nature kicks in again someday, in a big way. It might become 5000 points. You could retrace this bear market rally in a hurry."

But of course this was written on the internet by a nameless someone so how in the world could it have credibility, right? Idiots on the internet who can simply write anything they want without verification right CNBC boobs. Right, balloon boy followers of the mainstream media?

So from here everything is great if you ignore Italy, ignore jobs, ignore debt, ignore compound interest, ignore math, ignore market volume, ignore the breakdown in GM, ignore extend and pretend by the banks. Everything is great if you can morph into a Wall St. strategist who is driven by commissions and bonus's.

So from here:
I like the dollar,
I like highest quality U.S. federal bonds,
I like cash.

From here:
I do not like equities,
I do not like corp bonds, nor muni or state bonds.
I do not like gold here, nor silver, nor crude.

Rightly or wrongly I still see deflation, which most who are schooled in navigating have passed on.

Your common sense is much more valuable than the insight of boobs and boobs in chairs from the mainstream media, and in particular my favourite the propaganda network CNBC. Is there anything, I truly mean anything that Jim Cramer is not an expert on. Funny how Cramer loves gold now. How ironic that when gold was trading $350, 400, $450, 500, (shall I go on?) Mr. Cramer had no interest whatsoever. How could he? He was far too busy shoving his 4 tech horsemen down his viewers throat.

Quick side story. An old friend who followed the markets close and I are out for drinks in late 98, early 99 (circa tech bubble height) and while ordering I overhear my buddy conversing with a cat with us who was a broker at a rival firm ask "what did the XAU do today?" The broker's response was .... are you ready...... "what's the XAU?" Sadly this cat, whom I like, was more in tune market wise than the vast majority of other brokers so it can give you and idea of gene pool I am ridiculing.

Let me guess, over the past 12 months your broker has been calling and now just loves precious metals. Ask him why not Dell and Cisco anymore. Why not Nortel and Broadcom. What about LOL. Just for fun ask him/her the difference between common stock and livestock. FYI, your advisor, as I believe they fancy calling themselves now is no different than the furniture salesman at Art Van or the cat peddling Sea Rays at the local Marina. They're salespeople, selling what overseeing of 400 billion David Kelly and his ilk told them to sell, that's it. Just remember that the next time he tells you he's an investment consultant/advisor/ professsional.


John Peart said...

I love the thoughts. The only thing I disagree with is your take on gold and silver. Mr. Bernanke, at heart, is a money printer. That is all he knows how to do. His response to the current situation will be more printing. He will have good company as the EU, Japan, Switzerland, and many developing countries print more currency. It's a race to the bottom.

Harleydog said...


Appreciate the note. I agree the Bernank is a money printer as r all the CB'ers. My worry with the PM's is that in the global garage sale that is coming gold and silver with have the bid, and to quote Art Cashin,

"when you can't sell what you want to sell you sell what you can."

In any event gold and silver should go down, if they do at all, less than all other assets.

keep well and thx for reading.