Did you know that Gold is not Backed by Anything?

Have you ever wondered why the populace just don't get it.  Well, look no further than this reporter who is trying to explain last week's decline in gold by over $100, especially the part when she states, "Gold is not backed by anything." Do you get the feeling that "Dummy Down of America" is occurring?  But, in this reporter's case, I believe it is Canada.

Gary Shilling Says U.S. Faces Deflation

I am not the "lone wolf" talking about deflation.  Shilling sees the 30-year Treasury Bond at 2.5%, China in the tanks, and the S&P 500 at 800, based on a P/E of 10 with projected earnings of $80. 

You Know the Economy is Really Bad When ..............

Hallmark starts selling "Unemployment Sympathy Cards."  Yes, you read that correctly.  Hallmark has just released a line of cards for people who have lost their jobs.  And, the cards are flying off the shelves.

Of course, the next question is how soon should one send such a card?  Good question!  According to Emily Post, probably within a couple of days after losing a position a card should be sent.

Just when I thought I had heard just about everything, I come across stuff like this.  Once again, I am not that creative to make this stuff up.

Washington, We Have a Major Debt Problem!

Currently, our government has to borrow approximately forty cents of every dollar that it spends.  Interest on our national debt is approximately ten cents for every dollar the government spends.  In simple terms, see the following diagram, which should blow your mind.

What's Up with the Bulltarts?

I guess my post from this past Friday really hit a nerve and ticked off those bulltarts!  The DJIA is up approximately 350 points since my post Friday.  Wow!  That is quite some market move.  I was thinking about giving some kind of an apology to all those bulltarts out there for my comments; but, then again, every dog has his/her day.  And, I still firmly believe this dog won't hunt!

Risk Aversion Measurement Ratio

A good overall measure of the perceived risk by market participants is the "Fidelity Capital & Income Fund to Vanguard Long Term Treasury Fund Ratio."  Readings above 80 indicate that investors perceive risk to be low.  Readings below 50 indicate that investors perceive risk to be great.  How does one use this indicator?  Use it as a contrary indicator!  That is, not as a market timing tool, but as a measure of how investors are viewing risk.  If it is above 80, investors do not perceive that stocks are risky.  Below 50, investors perceive that stocks are very risky.  In other words, if too many investors think that the market is not risky, it probably is.  And, of course, if too many investors think that the market is too risky, it probably is not.

Challenges Facing American Education

Day of Reckoning

This is a must view "video."  I am not the only one saying that time is running out for one to get its financial house in order.  Here is a British trader on BBC telling us that governments are no longer in control.



Please Make It All Right

A week that the “Bulltarts” will definitely want to forget.  Why?  Let us count the ways.

1.     DJIA lost 760 points. Worse week since October 2008.

2.     Worse week for gold since 1987!  Silver is right behind gold.

3.     Financial stocks have no bidders.

4.     Europe has no bidders.

5.     Rumor has it that German banks have $1 trillion in hidden losses.  (Sounds like our financial system, since we did away with “mark-to-market.”)

I continue to marvel at investors who are now complaining about the market’s watershed; however, these same investors were not complaining in any way whatsoever when the Fed totally manipulated the market’s rise from March 2009 to May 2011.  It is almost like investors have an entitlement mentality that stocks must always go up, up, and up.  (Get over it.  The worse is still to come.)  We are starting to see the negative ramifications of thirty years of debt expansion growth that exceeded income growth, both from consumers and governments at all levels.  By the way, it is just not the United States, just look at what is happening in Europe.

Please excuse the above mini-diatribe. 

Currently, I do see downside risk in the S&P 500 to around 1030.  At which time, the market should have some form of a relief rally before resuming its downtrend.

Since all my Bulltarts out there need a lot of “Lovin” after this week’s massacre, I thought I would play a great song by Crazy Elephant entitled, “Gimme, Gimme Good Lovin, Make It All Right.”

Panic Selling in Silver

$34.61 was the 200-day EMA for $SLV on the daily chart, which was suppose to provide some support.  However, $SLV is now trading right at $30.  What is significant about that price?  According to the long-term Point & Figure Chart for $SLV, $30 is right on its "Bullish Support Line" that goes back to 2009.  If that support does not hold, $17-18 might be the next support levels in this stage of panic selling.

UAW Wants Richer Ford Deal

Well now, look what we have here.  Workers at Ford are looking for a sweeter deal than the one the United Auto Workers reached with Government Motors last week.  In other words, UAW thinks that workers should be paid more to put "bolts" on Fords than Chevys.  Sounds reasonable to me, what about you? 

Don't Listen to Those Market Pundits

One thing that I do know, maybe more than one thing.  If you follow the current market pundits (Those individuals that have not lived through a real, real bear market.  Yes, I know many of you are probably saying, but I did survive 2008-2009.), you will lose, big time.  These individuals are simply focusing on what they believe will occur, because their history is so limited.  What do I mean by "so limited?"  Their age is the barrier.  See, we don't teach history any longer in our schools.  If we do, it is a "revisionist" view of what the world is and how it operates.  That is, the market always goes up.  Therefore, don't worry.  Big Brother and the Fed will take care of all your financial needs.   If you take that position, your pension, 401(k), or 403 (b) will be at least halved over the next four years.

I truly believe that deflation has now usurped inflation as the #1 problem facing not only our country but the world.  See, we have not de-leveraged our debt burden over the past two years.  The Fed's policy of trying to increase the wealth effect of Americans through fiat creation has been a complete failure.  Debt still has to be eliminated, and it will occur one way or another.  That is, either through paying it off or through bankruptcy.  Just look at the following chart on oil (WTIC).  Oil is signaling a period of deflation lies directly ahead. 

Member Countries of the European Union (EU)

The EU currently has 27 member countries, which have transferred some of their sovereignty, or lawmaking authority, to the EU. I believe that very shortly we will have something far less than 27 EU members.  The number that I have in mind is "10."  Which ten will eventually make up the EU? 

• Austria
  
• Belgium
  
• Bulgaria
  
• Cyprus
  
• Czech Republic
  
• Denmark
  
• Estonia
  
• Finland
  
• France
  
• Germany
  
• Greece
  
• Hungary
  
• Ireland
  
• Italy
  

• Latvia
  
• Lithuania
  
• Luxembourg
  
• Malta
  
• Netherlands
  
• Poland
  
• Portugal
  
• Romania
  
• Slovakia
  
• Slovenia
  
• Spain
  
• Sweden
  
• United Kingdom

Macy’s To Downsize Space

We have all heard of corporate America downsizing; but, now, Macy's takes it to a new level.  (No pun intended.)  Its Pittsburg store will reduce its selling to 6 of its 12 floors.  Now, that is really corporate downsizing when a retail establishment closes 6 floors.  But, of course, Macy's puts the best spin possible on it.  And, Macy's claims that no one will be let go from it floor reduction plan.  Does anyone really believe that?  Unless, Macy's is going to use all those extra bodies to pretend that it actually has customers.  As I stated the other day, the worse is still to come. 

What is Up with $SLV?

Twitter

You can now receive my Twitter posts on investing by texting: follow DeBauche to 40404. 

Drinks on Me!

Operation Twist is just what "NOT" the economy needed.  Let's just throw another $400 billion in fiat money at the problem.  We might help Wall Street but not Main Street.  Keep-in-mind that this policy was tried fifty years ago.  The outcome was a complete failure!  However, Bernanke believes that Operation Twist will be different this time.  Another round of drinks, please!

10-year Treasury Note Yield: Lowest Level in 55 Years

This is what true deflation looks like.  That is, look no further than the yield on the 10-year TSY Note.  Are you getting prepared, yet?  The worse is still to come!

Are You Getting Prepared?

This is what Robert Prechter over at "The Elliott Wave Theorist" is forecasting to occur over the next five years.  You just may want to copy this post, file it away, and let's talk sometime in 2016.

Obama to Propose New Tax Rate for Millionaires

Let's just pass the Fair Tax.  I know taxing millionaires makes for good political rhetoric, but let's get serious and pass the only tax that makes everyone pay something.  And, that is the "Fair Tax."

Do you know that the 2010 Tax Code is 71,684 pages in length.  Look at the following chart.  I like those 400 pages back in 1913.  And, I believe you would agree that we must completely revamp and simplify the tax code.

What is the Fair Tax Plan?

The Fair Tax Plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach including a progressive national sales tax, a prebate to ensure no American pays federal taxes on spending up to the poverty level, dollar-for-dollar federal revenue replacement, and through a companion legislation, which would be the repeal of the 16th Amendment.  This nonpartisan legislation (HR 25/S 1025) abolishes all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-emploment taxes and replaces them with one simple, visible, federal retail tax.  The IRS is disbanded and defunded.

In other words, The "FairTax" taxes the American people only on what they choose to spend on new goods or services, not on what they earn.  What is not to like about the Fair Tax Plan?  It is definitely fair and equitable in comparison to the inequity of our current tax system.

UBS Warns of Big Loss on Rogue Trades

The Swiss bank, UBS, was rocked early Thursday by its disclosure that a rogue trader racked up about $2 billion in losses at its London branch.  What I find amazing about this situation is not losing $2 billion of course, but how is it that we never seem to hear about unauthorized trades by a rogue trader that makes banks money?  Funny how that happens.  It is like the current market in that as long as financial assets soar to the heavens, no one cares how the Fed, as the rogue trader, is manipulating the market. 

SAT Scores Hit a New Low

SAT scores for the high-school graduating class of 2011 fell in all three subject areas, and the average reading and writing scores were the lowest ever recorded, according to data released on Wednesday.
The results from the college-entrance exam, taken by about 1.6 million students, also revealed that only 43% of students posted a score high enough to indicate they were ready to succeed in college, according to the College Board, the nonprofit that administers the exam.

This is not good news for the U.S. competing in the global market place.  Let alone for employers hiring individuals that have the necessary skill-sets to compete in the international environment.  I highly doubt that students will do any better in college than what they have done in high school. 

Solyndra Loan: The Saga Continues

Peter Lynch, a New York-based solar energy analyst, told ABC News it took only a cursory glance through Solyndra's prospectus to see there was a problem with their numbers.  He said, "It's very difficult to perceive a company with a model that says, well, I can build something for six dollars and sell it for three dollars.  Those numbers don't generally work. You don't want to lose three dollars for every unit you make."  Wow, what a novel business concept.  That is, sell something for more than what it costs to manufacture.  I will definitely impart that to my finance students.

Correction on Solyndra

My post earlier today that named David Gerstenhaber of Argonaut Capital as the main beneficiary of the Solyndra’s bankruptcy was incorrect.  To Mr. Gerstenhaber and his firm, Argonaut Capital, an apology is in order from me.   

The firm in question is Argonaut Venture, which is an investment arm of the Tulsa-based foundation that holds almost 39% of Solyndra's parent, 360 Solar Degree Holdings Inc.  So who is behind Argonaut Ventures?  George Kaiser, who is an Oklahoma oil billionaire, is the individual through his foundation that made the investment through Argonaut.  He is also the individual that made all those trips to the White House just before Solyndra received half-billion dollars from the Department of Energy.  (Please read the previous post.)

Solyndra Does Make House Calls

According to White House visitor logs, between March 12, 2009, and April 14, 2011, Solyndra officials and investors made no fewer than 20 trips to the White House.   In the week before the administration awarded Solyndra with the first-ever alternative energy loan guarantee of half-billion dollars, which was awarded on March 20, four separate visits were logged.

George Kaiser, who was a major Solyndra investor as well as a Obama donor, made three visits to the White House on March 12, 2009, and one on March 13.  He has denied any direct involvement in the Solyndra deal and through a statement from his foundation said he “did not participate in any discussions with the U.S. government regarding the loan.”  However, the countless meetings at the White House seem hardly coincidental.   In fact, Kaiser was responsible for 16 of the 20 meetings that showed up on the White House logs.  And, by the way, he personally donated $53,500 to Obama’s presidential campaign in 2008.  All what I can say is that this appears to be a perfect example of crony capitalism at work, which is something this President said he would not tolerate. 

Solyndra: Update

This post is a follow-up from my post of Thursday, September 1, 2011.

“The U.S. Department of Energy is one of the largest creditors in the bankruptcy case, pressing to reclaim a $527 million federal loan. Court papers say an inter-creditor agreement ranks the federal loan behind a $69 million loan from lenders led by Argonaut.”

Why is the above paragraph relevant?  Because, your money, you know that half-billion dollars, has a subordinate position to $69 million in private equity money.  Oh, by the way, Argonaut Capital is a hedge fund run by one David Gerstenhaber.  And, he, of course, is a major political contributor. You can do a Google search to find out what political party, or you can simply guess which one.

Ok, so the Department of Energy is either incompetent or takes care of its cronies (corruption).  Why?  Because it looks like the Department of Energy has just bailed out a private equity firm’s bad investment, and I think inquiring minds would like to know why. 

Remember That Debt Limit

Folks, we have $45 billion to go before we hit the debt ceiling.  (See the following table.) You know that great deal we reached last month about increasing the debt ceiling by over $2 trillion; it lasted only a month!  And now,  this Administration wants to spend another $300 billion on a new stimulus program.  The others have not worked, and this will not work either.  The only thing it will do is create misery!!!  Mark my word.

The Next Big Bailout: The US Postal Service

In fiscal year 2010, the Postal Service suffered a $8.5 billion net loss and about the same amount this year, which is a trend of widening losses.  The Postal Service has nearly 600,000 employees; it’s larger than the active component of the United States Army.  There are over 3,000 post offices out of a total of 32,000 across the country that generate less than $27,500 in annual revenue. It’s barely possible to pay rent and keep the lights on with that kind of revenue, let alone hire a staff, maintain delivery vehicles, or pay for fuel.  Here are some further facts:

1. About 80 cents of every postal dollar pays for employee salaries and benefits (compared to less than 50 cents for FedEx and UPS).
2. Employees have no-layoff clauses, the starting salaries are about 25% to 30% higher than for comparably skilled private workers, and the fringe benefits are so expensive that the Government Accountability Office (GAO) says $500 million a year could be saved merely by bringing health benefits into line with those of other federal workers. 

Now, since email has replaced smail, I would imagine the Postal Service will be asking Congress to implement a Federal Excise Tax (FET) and a Federal Universal Service Tax, which would be similar to what phone companies charge you now for service to rural areas.  Both of these taxes would go directly to the Postal Service to cover health benefits and pension benefits.  Get ready internet users, you will see it soon on your Internet Provider's bill.  Someone has to pay their salaries, health benefits, and retirement benefits, and it will be you!

Ford Building $1 Billion Manufacturing Complex in India

Ford has started construction on a $1 billion manufacturing and engineering complex in India.  The new manufacturing facilities will create 5,000 jobs and will be able initially to produce 240,000 vehicles and 270,000 engines a year.  But, the good news is that it is not being built in China.  Bad news is that we will not have those 5,000 jobs here.

End of the Innocence

Don Henley's song got me thinking about the end of the innocence for the U.S. economy.  We have entered the "New Norm."  (Your life, as you have known it, is about to make a dramatic change.)  Enjoy it.  That is, the song. 

Any Which Way But Down!

According to the Gallup poll, Americans now consider "Gold" to be the best long-term investment.  (See the following table.)  To go along with this favorable trend, the Daily Sentiment Index has a reading of 98% bulls on gold.  Not to be undone, Central Banks are currently net buyers of gold for the first time in a generation.  It is hard to find anyone who believes that gold's current parabolic rise will end anytime soon.  But, what would happen to gold and silver if deflation becomes enemy #1?  But, then again, just about everyone believes that is an impossibility.  Well, there is a Wall Street axiom that goes something like this: "The market will do whatever it has to do to prove the majority of investors wrong!"  In other words, be careful out there my Gold Bugs, because deflation (IMHO) has not run its course.

Americans’ Ratings of the Best Long-term Investment
Gallup	Gold	Real Estate	Stocks	Savings	Bonds
August 11-14, 2011	34%	19%	17%	14%	10%

EMA Investment Strategy: Historical Perspective

FHFA Sues 17 U.S. and Euro Banks for Over $100 Billion in Losses

The Federal Housing Finance Administration (FHFA) has just announced mortgage-related lawsuits against U.S. and Euro banks.  Finally, legal action is being taken against the fraud and abuse of those Wall Street firms and investment bankers that were directly involved in the subprime debacle.  Now, who is going to hold Congress accountable for its complicity with these firms?  Fourteen of the seventeen firms are listed below along with the dollar amount of the lawsuits.  Also, I would like to see some real jail time for those individuals within each of the firms that were directly involved with the mortgage-backed security fraud.

1. Goldman Sachs has been sued over losses on $11.1 billion in securities.
2. Bank of America has been sued over $30.85 billion in losses on securities.
3. Barclays has been sued for $4.9 billion in losses on securities.
4. UBS has been sued for over $900 million in losses on securities.
5. Nomura for over $2 billion in losses on securities.
6. Credit Suisse has now been sued, too. No dollar figure provided.
7. Citigroup has been sued over losses totaling $3.5 billion in losses on securities.
8. Deutsche Bank has been sued for $14.2 billion in losses on securities.
9. JPMorgan has been sued for losses on $33 billion worth of securities. 
10. First Horizon, General Electric, and Ally Financial have been sued too. No dollar amount provided.
11. HSBC has been sued over losses on $6.2 billion worth of securities. 
12. Morgan Stanley has been sued over losses on $10.58 billion in Certificates issued in connection with 33 securitizations underwritten by the firm or its entities.

No New Jobs!

The U.S. economy created no new jobs, and the unemployment rate held at 9.1% in August. And, it was the first time since World War II that the economy had a net zero jobs created for a month. If you subtract off the BLS "Birth/Death" adjustment statistic of 87,000, we would have a "negative" job growth.  By the way, the Birth/Death statistic has created over 471,000 of "mythical jobs" in the past year!  And, of course, the market hates this news!  The "E-mini S&P 500" is off by 20, which would equate to about the DJIA opening down 200 points. 

Solyndra: Another "Green" Company Down the Tubes!

Solyndra, a California-based solar company, had received a $535 million loan guarantee from the Obama administration announced Wednesday that it will shut down.  The company said Wednesday it would suspend its manufacturing operations and lay off 1,100 employees effective immediately. The company said it intends to file a petition for Chapter 11 bankruptcy protection.

Wow!  So, we half a billion dollars in federally-guaranteed loans, and a year later the firm files bankruptcy?  I'm especially interested in where the $535 million actually went and what it was spent on.  And, did management get any bonuses?  An inquiring mind would really like to know the answer to that question. 

What should be the lesson learned here?  Answer: The government has no business in trying to pick winners and losers.  (That is the job of the market economy.)  And, what does the government have to show for financing this debacle?  Answer: Losing nearly half a billion dollars.  However, I do like its name and the sound of it.