Monday, February 28, 2011

U.S. Uncut - Follow Up

Last week we discussed the organization U.S. Uncut and their plans to stage rallies and protests on February 26th to show their displeasure with  large corporations that dodge taxes  We want to follow up this morning and show you some of the video taken at their protests this weekend.  Apparently they were able to disrupt some business at local BofA branches.

United States Flag old, isolated on white backgroundThis group is of interest to us for a few reasons, even though we completely disagree with their premise and message. First, we want to bring to light these types of "American Uprisings" to help people understand that this is only the very tip of the iceberg.  Huge austerity cuts are coming to the United States in the not-so-distant future, that is certain.  Once those cuts become reality and politicians begin presenting their solutions, you can bet the protests will be 100x larger than what we saw from U.S. Uncut this weekend.  Second, we want to help explain why these groups are misguided when it comes to their message (see our post American Uprising - The Preview) and help people understand the true nature of our economic problems and solutions.  Third, Americans need to understand the seriousness of what is coming our way and find ways to protect their investments and financial health in the face of these risks.

This first guy is very interesting.  Again, the idea that cracking down on large corporations that do not pay taxes will solve all our problems and have no repercussions is simply misguided.  We agree that these corporations should never have received bailouts of any kind.  However, the men and women that work at these corporations breathe the same air and bleed the same red blood as those at U.S. Uncut.  Their jobs are just as meaningful and important as any, including union workers.  Corporations will do what it takes to earn a profit and an acceptable ROI for their inventors and owners.  That means they will save money elsewhere if they are forced to pay these taxes in some government crackdown.  Most likely they will cut jobs, which means more Americans unemployed.  As we mentioned before, any man or woman is freely able to invest in these "evil corporations" and become an owner, thereby profiting in the same way and earning the same return as all the other shareholders.  By the way, closing all the tax loopholes in the world won't bring in enough money to keep this ship afloat in the long run!





Thursday, February 24, 2011

Wisconsin Protest Signs

These Wisconsin protest signs are extremely funny and creative.  We have seen protest signs from around the world, and these are up there with the best.  The people from Wisconsin seem to have a good sense of humor and it shows in their signs!



This is our favorite Wisconsin protest sign!!

















Tags:  Wisconsin protest signs, Wisconsin protesters, Wisconsin Unions, Funny protest signs, Scott Walker, Collective Bargaining

Joe Klein in Madison

Very well done video from Time, Inc. gives a brief overview of the situations along with some great "on the ground" shots.   Regardless of which side you support, there is no arguing the last statement in the video that we are now seeing a major change in American political life.  As we have mentioned in previous posts, changes are coming whether we agree with them or not.  Our generation now has to deal with the mistakes of our parents and grandparents, and it will not be pretty.

Monday, February 21, 2011

American Uprising... The Preview

Looks like we are going to get a small, small glimpse of some organized protests here in the U.S. later this week.  According to sources, a group calling itself "USUncut" is planning gatherings in dozens of cities across the country on February 26th to show their displeasure toward government cuts that affect the poor and middle class.

We pay taxesWhat we are witnessing is both sad and frustrating.  The people these organizations are directing their anger toward are indeed deserving of that anger, however the reason for the anger is misguided.  Yes, the government is the source of the vast majority of the pain we are feeling as a nation.  However, the reason for the pain is the very thing USUncut if fighting to keep.  It is excessive entitlement programs and and explosion of government spending that helped put us in such a sad situation.  It is government spending off all types!  Republicans and Democrats are all to blame! Hard line conservatives that support military spending and huge tax cuts are just as guilty as bleeding-heart liberals that support higher taxes, unemployment insurance, environmental subsidies and welfare programs.

All of this misguided energy and passion is so very frustrating to watch.  It will become even harder to take when the protests are widespread and violent after serious cuts are proposed for programs that hit the poor very hard.

We are workers not criminalsThe fact is that all Americans are going to be affected by these cuts, and the truth is that these cuts are all necessary! Cuts need to be made deep and across the board.  What the Republicans are proposing does not even begin to scratch the surface of true spending reform.  As we have mentioned before, if we do not get control of our spending ourselves, the rest of the world will force our hand.  Either way the day is coming when we will have to make real sacrifices, there is no avoiding that reality.

Below is some information from the USUncut website.  They are suggesting that closing the tax loopholes of huge corporations will provide enough tax revenue to avoid cutting social programs and government jobs.  What they do not realize is that closing those loopholes will result in the loss of thousands of non-government jobs from the private sector.   It is the old and tired idea that corporations are hording money and living large at the expense of everyone else.  If that is the case, and this is what you believe, then you are free to go out and buy stock in those "greedy" corporations so you can profit from all those tax loopholes just like they do!

           Excerpt from USUncut:
US Uncut is about taking action against unnecessary and unfair cuts to public services across the US. Washington’s proposed budget for the coming year sends a clear message: The wrath of budget cuts will fall upon the shoulders of hard-working Americans. 
Obama seeks to trim $1.1 trillion from the budget in the next ten years by cutting or eliminating over 200 federal programs, many dedicated to social services and education. 
For instance, it cuts in half funding to subsidize heating for low-income Americans; limits an expansion of the Pell grant program for students; and decreases Environmental Protection Agency funding by over 12%. 
Meanwhile, Republicans are using their new House majority to slash spending even more brutally. The GOP has made it clear that they are bent on raiding funds for Social Security, Medicare, education; determined to kill health care reform; and gut needed investments in infrastructure, climate change and job creation, at a time when America needs it most. 
These cuts will come on top of very painful austerity measures made at the state-level across our nation–-worth hundreds of billions--since the recession began.
In short, budget cuts demonstrate that Washington has abandoned ordinary Americans.
But there is an alternative: Make corporate tax avoiders pay. 
Enjoying record profits and taxpayer-funded bailouts as the economy slowly recovers from a financial crisis, nearly two-thirds of US corporations don't pay any income taxes, instead opting to abuse tax loopholes and offshore tax havens. According to this study from the non-partisan Government Accountability Office, 83 of the top 100 publicly traded corporations that operate in the US exploit corporate tax havens. Since 2009, America’s most profitable companies such as ExxonMobil, General Electric, Bank of America and Citigroup all paid a grand total of $0 in federal income taxes to Uncle Sam. Tax havens alone account for up to $1 trillion in tax revenue lost every decade, money that could be invested in K-12 education, colleges, public health, job creation and hundreds of other worthy public programs. 
If we pay our taxes, why don’t they? If corporations profit here, shouldn't they pay here?

Playing the Game Correctly?

We are less than two months into 2011, and the news cycle is enough to scare even those that only casually pay attention to world events.  Many people have flooded the Internet looking for news and content on the latest in the Middle East, the U.S. deficit, food inflation, and various other hot button issues.  This is very encouraging as we feel it is critical that everyone understands these events and how they will impact each and every person.

The latest fad is to take a position on who to blame for all of this uncertainty and unrest.   Ben Bernanke, Obama, Republicans, Mubarak, Sarah Palin??   Take your pick, you are certain to find someone that agrees with you.   There is plenty of blame to go around. 


Antique Retro Gerry CanBlame whomever you wish, but all that blame won't help one bit when a crisis comes and you are struggling to make ends meet, make the mortgage payment, or feed your family.  You see, we are all part of the game, and we all must play by the rules of the game.  When the time comes, it won't help to blame the rules of the game, or blame the group that created the game.  You must learn the rules of the game and position yourself correctly to win the game!

Let's take a look at one small way to tell whether you are playing the game correctly or not.  Are you one of those people that drives all over town looking for gas that is 5 cents cheaper?  Do you complain to everyone you know about the price of gas when it starts to go up?  Do you start to think of ways to cut back your driving if gas hits $4.00 per gallon this summer?   If you are terrified of the idea of rising oil and gas prices.. YOU ARE NOT PLAYING THE GAME CORRECTLY! You are going to lose the game if we have a serious crisis around the world or in the United States. You are not protected and are not protecting your family for the risks associated with social and economic unrest.

Increasing price of oilEvery single American can easily protect themselves from rising oil and gasoline prices.  All you need is an IRA or brokerage account.  It is as simple as taking a small percentage of your investment portfolio and buying an ETF that tracks the price of oil or gasoline.   That's it, nothing more has to be done in this case.  You are now protected from rising oil and gasoline prices.  The return you make in your account will more than offset any extra cost you incur at the pump.   If you drive all over town and are very concerned about rising gas prices, simply buy more of that ETF and you will have more protection.  NOW YOU ARE PLAYING THE GAME CORRECTLY!  You will no longer care if gas prices go up, in fact you will be happy because you will see the value of your investment increase!  You will not have to stress about driving all over town to save a few bucks!  Finally, you can relax when your in-laws bring up the price of rising gasoline and help them protect themselves as well!

Folks, this is real and this is serious.  If you lose the game, you will only be able to blame yourself.  If gasoline goes to $5, $8, $10 per gallon after you read this post, and you are not protected, blame yourself.  Everyone has the tools to win the game and protect themselves. There are no excuses.  Educate yourself on your own and put yourself in a position to play by the rules and win the game!

There are many other ways to play the game correctly.  We will continue to write about other strategies in the near future.  If you have any questions, please feel free to contact us at support @precisiontradingsolutions.com.

Thursday, February 17, 2011

Wisconsin Budget Protests

Wisconsin State FlagEveryone needs to be fully aware of what is going on in Wisconsin, because you can bet your life these types of protests are coming to your state soon!   Wisconsin is facing a budget deficit of $137 million for their fiscal year that ends in June.  That's not even close to the real problem.  If changes are not made, Wisconsin could be facing a $3.6 billion shortfall over the next two years!!  That is a massive amount of debt for a state the size of Wisconsin.  They have no choice but to make serious cuts now.  States must balance their budgets, unlike the federal government, as they cannot print their way out of trouble.

Governor Rep. Scott Walker is proposing a number of initiatives to "repair" the state's budget.  These are the hot button issues:

  • Limit the total wage increases for union public employees to the rate of inflation, unless voters approve the increase by referendum. The proposal requires unions to take a yearly vote to maintain their status as a union and prohibits public employers from collecting union dues for unions. During his campaign, Walker received endorsements from the Wisconsin Troopers' Association and the unions representing Milwaukee cops and firefighters, which would be exempted from those changes, as well.
  • Require state employees to contribute 5.8% of their pay to their pensions. The proposal also requires state workers to pick up at least 12.6% of the cost of their health care premiums and trims overall benefits in health plans.
  • Refinance state debt to push principal payments into the future and save $165 million in this fiscal year. That money would be used to help cover two looming bills for the state - $58.7 million owed to Minnesota following the breakdown of an income tax agreement covering citizens who work across state lines and $200 million owed to a medical malpractice fund that was illegally raided by Gov. Jim Doyle and lawmakers in 2007.
  • Change state laws so that unions can no longer negotiate over health and pension benefits.

State employees are now protesting these changes.   Dozens of school districts were closed on Wednesday and Thursday because a large percentage of teachers called in "sick" to demonstrate their feelings on the issues.  Over 10,000 people have been protesting each day in and around the capitol building.

Folks, the bottom line is that the party is coming to an end.  We watched in Greece as thousands protested against cuts to their benefits.  When we learn of why they are so upset, most Americans feel that those in Europe have been eating from the government trough for far too long.  The fact is that government agencies and employees in this country have also been receiving completely unrealistic and uncompetitive benefits and salaries as well.  The private sector simply does not operate in this manner.  This is an "every man for himself" world we live in, and it will always be that way.  If you do not like the changes that the State of Wisconsin is making, you are free to leave and go find a job that compensates you in a way that you feel is fair and just.  Government employees do wonderful work, there is no arguing that fact.  They are hard working men and women that deserve to be compensated for their efforts and results.  However we simply can no longer afford to compensate them at a level that is not equal to what they would receive in the private sector.  If we do not make these changes now, we all will pay the price in the end.

Wednesday, February 16, 2011

Obama's Budget - "Complete and Total Joke"



We couldn't say it better ourselves!   We would however add to this and say that the entire U.S. Monetary and Fiscal policies are complete jokes!  Obama's budget may be a joke, but the problem is that he is caught in a system that gives him and others no choice but to tee up these types of non-solutions to our problems.  We explained much of this in our recent post "Why The Future Is So Clear".




Here is a fact.  No politician will ever make the cuts necessary to get our debt under control until we are in a state of emergency.  What is a state of emergency?  Ask Mubarak, he probably has some idea now.   Someone should have told our government a long, long time ago about the number one problem with spending and entitlement programs.  They are easy to implement, but almost impossible to take back!   The spending part has been easy and fun and has created this false economy we have enjoyed over the last ten years, if not the last 50.  We will now all come to fully understand just how hard the "taking back" part can be for a society.

There is some good news.  Every investor can protect their assets by making the right decisions!

Barack Obama’s Budget For 2012: A Complete And Total Joke
Februrary 14, 2011 
 Is Barack Obama trying to play a joke on all of us?  The budget that the Obama administration has submitted for fiscal 2012 is so out of touch with reality that it may as well be a budget for "Narnia", "Fantasy Island", "Atlantis" or some other mythical land.  You can view the hard numbers for Barack Obama's 2012 budget right here.  Obama's budget assumes that the U.S. will experience economic growth of over 5 percent for most of the coming decade.  That is so far-fetched that "optimistic" is not the right word for it.  It also assumes that U.S. government income (primarily made up of taxes on all of us) will more than double over the next ten years.  For 2011, the budget projects that the U.S. government will take in a total of 2.1 trillion dollars, and for 2021 the budget projects that the U.S. government will take in a total of 4.9 trillion dollars.  For the Obama administration to assume that the federal government will be able to drain an extra 2.8 trillion dollars per year out of the American people by the year 2021 is ridicul0us beyond belief.  In his new budget Barack Obama does propose some very, very modest spending cuts that he knows have no chance of getting through Congress.  Barack Obama's budget for 2012 also does not even attempt to make any cuts to entitlement programs such as Social Security and Medicare.  In essence, you can sum up Barack Obama's budget proposal for 2012 by saying that it is a complete and total joke.  This budget is so delusional and so out of touch with reality that it is hard to imagine anyone taking it seriously.
           >> Continue reading....

Barack Obama, Budget, Dollars, EconomicEconomic Growth, Income, Medicare, Social Security, Spending, Taxes Government Debt, U.S. Debt, Deficit, 2011, economic collapse, GOP budget, spending cuts

Tuesday, February 15, 2011

Cost of War

When you stop to analyze how our debt will affect our country in the future, take a moment to consider this idea.  The unimaginable amount of debt we are currently carrying has made our country more vulnerable than ever before.   Forget about the "war on terror", our country is financially incapable of fighting any type of "real" war right now.  Anything more than a conflict (Iraq and Afghanistan are conflicts - just ask WWII vets) would push our debt to unsustainable levels.  Consider the chart below, which shows the U.S. debt as a percentage of GDP.  Many of you have seen these charts before, but this does not tell the whole story.  At first glance we see that the total ratio of debt today is below that of the WWII era.   That might seem encouraging to some, however the story is not complete.  Let's go ahead and add the unfunded liabilities, which would take us right up to near WWII levels.    We have the same ratio of debt today as we did when we were fighting for the survival of our country during the greatest war the world has ever seen??  Unbelievable!  Think about how much debt we would have to incur to fight a war right now against a formidable enemy.    The problem is, it does not matter how much debt it would take, because we would not be able to issue any additional amounts of debt, period.  Who is going to buy that debt?  Good luck with war bonds, the general population in the U.S. is already drowning in their own debt and they don't have 2 nickels to rub together.

This is just one example of how enormous debt levels make our country less safe.   We cannot run our debt levels during peacetime at wartime levels.  We must make sure we have enough "available credit" for emergency situations.  We are setting ourselves up for complete disaster if this continues much longer.

Monday, February 14, 2011

Drowning in Debt

We are focusing our discussion this week on a topic that should concern each and every American, the U.S. debt.   Many "normal" Americas that don't spend their time reading financial blogs may wonder why there is so much focus and concern these days about the U.S. deficit and total debt.   We have always had deficits and debt, right?  Yes, for the most part, however the concern is that if we continue on this current trend we will soon arrive at a place nobody ever dreamed we would see in our lifetimes. That is the day the statement "backed by the full faith and credit of the United States government" no longer has any value.  It is hard to comprehend the amount of devastation and despair that we will endure if that day ever comes.

Let's start the week off with perhaps the most disturbing fact that very few people realize....

TOTAL U.S UNFUNDED LIABILITIES NOW STAND AT $112 TRILLION, 51% MORE THAN THE GDP OF THE ENTIRE WORLD ($74 TRILLION) IN 2010!!

Below is a screen shot of the U.S. debt situation.....

Friday, February 11, 2011

Economics of Love

An estimated 198 million roses were produced for Valentine's Day in 2010; about 110 million roses, mostly red, will be sold and delivered within a three-day time period this year
BREAKING NEWS:  Valentine's Day is Monday, February 14th!   That is now only 3 days away!

Now that we have our public service announcement out of the way, let's take a look at some of the interesting economics behind all the hearts, flowers, and chocolates.


TOP 10 ECONOMIC FACTS ON VALENTINE'S DAY

10) Valentine's Day is a $16 billion dollar a year industry

9) The average amount spent per person on Valentine's Day is $116.21

8) Spending on Valentine's day is expected to be up 12.1% over last year

7) The average person spends $5.04 on their pets for Valentine's Day

6) 52.1% of people will buy a card for their valentine

5) 15% of women will send themselves flowers on Valentine's Day

4) Most gifts (36%) are purchased at discount stores

3) 32% of people will do their Valentine's shopping online

2) Men spend double what women spend on Valentine's Day

1) Almost 200 million roses are produced for Valentine's Day

Source: Business Insider

Thursday, February 10, 2011

Egypt Economy Close to Meltdown

One of the worst case scenarios, at least economically, appears to now be a reality. The news site DEBKAfile is reporting that a high-ranking U.S. source in Washington has indicated that  military takeover is the only way to avoid a complete economic collapse in Egypt.  The country is now completely shut down as a result of recent strikes and walkouts.  No trains are running, no schools are open, and no tolls are being collected on the Suez Canal.   It is hard to say if the world markets are reacting to this development, but it is possible that the world is preparing for what could be an economic and humanitarian disaster.   Remember, most economies around the world are very fragile right now.  It is unlikely that they can absorb this type of blow.

Egypt's economy close to meltdown. Military coup near
DEBKAfile Exclusive Report February 9, 2011, 11:17 PM (GMT+02:00)

The biggest Arab country with a population of 82 million is on the verge of breakdown as large sections of is economic machinery are shut down by spreading strikes and workers' revolts against managements appointed by the Mubarak regime and Vice President Omar's Suleiman's leadership. 
Go to fullsize imageDEBKAfile's sources report there are no trains since railway workers declared a general strike; the main state highways are barricaded by protesters. Egypt's 1,000-kilometer long Cairo-Aswan lifeline along the Nile was shut to traffic all day Wednesday, Feb. 9 with no sign that the army or security forces are willing or able to reopen it to traffic. 
As protesters continue to pour into Cairo's Tahrir Square, blocked roads are preventing produce reaching shops and markets – or even the soldiers posted in the town centers. Men of the 2nd and 9th divisions on street duty in Cairo have had no food rations for 12 hours. The disruptions threaten Egyptian towns with dire food shortages. 
The work forces of the big industrial complexes have downed tools and customs officers have stopped levying toll fees from the approximately 50 ships transiting the Suez Canal every day and netting the Egyptian treasury $3 billion a year, its main source of revenue. Around 1.300,000 foreign tourists have fled the country since the disorders began taking with them another major source of revenue. 
The closure of schools was extended Wednesday after teachers refused to go back to classrooms until Mubarak was gone. 
Egypt's foreign minister Abul Gheit said that the only way to save Egypt is for the army to step in. He rejected US demands for an immediate repeal of emergency law and accused Washington of trying to impose its will on Cairo and its advice was "unhelpful." 
A high-ranking US source in Washington told DEBKAfile's sources that the situation in Egypt is so appalling that a military takeover of the regime is no longer a threat but the only hope of rescuing Egypt from economic meltdown. Yet at this critical moment, he said, "the Egyptian army appears to have no figure capable of saving Egypt."
           >> Read Februrary 8th report

Wednesday, February 9, 2011

Bernanke is Smart

In light of the testimony going on this week, let's look at some of the truly fascinating predictions of Mr. Bernanke over the last few years.

Today, he is telling us that the economy is growing, inflation is not a problem, housing is recovering, and not raising the debt ceiling would be disastrous to our country.   Back then he was telling us that housing prices would not decline, growth would continue, and the unemployment rate would remain low.

There really is no reason to believe anything this man says when he talks about the future.


Tuesday, February 8, 2011

Silver is Strong

We are watching silver (SLV) move back up above $29, which was the previous intermediate-term high.  We shorted SLV back on January 13th near $27.95.   The metal fell down near $26 but has since strengthened.  Our strategy dictates that we do not hold cash, so we will swap from 100% short to 100% long SLV near the close if SLV closes above the previous high of $30.

The overall fundematals remain extremely bullish for SLV from our viewpoint.   Record low interest rates, inflationary signs around the world, and underperformance of GLD over the last number of years.


GE Breaking Out!

GE has been up against major resistance for a week now and is finally breaking out today above $21.  This resistance goes all the way back to before the crash.  If GE can close above this level on the daily and weekly charts that should be a very bullish sign.   Our charts have signaled a long for GE since last fall and the stock is up over 30% since that time.

Take a look at our free charts of GE in our guest section during the month of February!

Monday, February 7, 2011

Egypt Crisis "New Risk" to India's Inflation

We have made a number of posts on the food inflation crisis in India and the overall weakness of the global economy.  People are starting to take notice to the fact that the crisis in Egypt will affect the entire region.   New concerns today from India on how rising oil prices may exacerbate their already dicey inflation problems.  India is going to be a big story this year.  Let's hope they find some solutions quickly!

Egypt Crisis Poses ‘New Risk’ to India’s Inflation
February 07, 2011, 7:34 AM EST
By Anoop Agrawal and Kartik Goyal

Feb. 7 (Bloomberg) -- Egypt’s political crisis may drive oil and commodity prices higher, Indian central bank Deputy Governor Subir Gokarn said, flagging a “new risk” to inflation that may spur policy makers to boost interest rates.

farming“There’s obviously a risk that the situation will transmit into higher commodity prices,” Gokarn told reporters in New Delhi today. “So, that intensifies the risk.”

Indian government bond yields climbed to a three-week high as Asia’s third-largest economy, which meets about three quarters of its annual energy needs from imports, braces for the impact of higher fuel costs. Oil prices could more than double if the unrest in Egypt forces the closure of the Suez Canal, Venezuelan Oil Minister Rafael Ramirez said Feb. 4.

“Everybody is bearish on bonds due to the gains in prices,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank in Mumbai. “The Egypt issue has also added to the uncertainty on the oil front.”
           >> Continue reading

           Source: Bloomberg BusinessWeek

Sunday, February 6, 2011

Egyptian Helmets

A lighter side to the terrible unrest in Egypt...  Perhaps the NFL should consider some of these helmet designs!












Egypt Protests: The head-protection being worn by the protestors in Egypt


Friday, February 4, 2011

Unemployed: We Give Up!

If you still place any credibility in the Non-Farm Payrolls report that the government releases each month, this month's report should shatter those thoughts.   We don't need any Noble Peace Prize winning economists to do our analysis.  Just look at the headlines:

* Unemployment rate dropped from 9.4% in December to 9.0% in January.
* The economy created 36,000 new jobs in January.

Huh?  According to the U.S. Census Bureau, there are about 20,000 cities in the U.S.   That means that just over 1 new job was created in every city in our country!  This may seem great if you live in Meers, OK, population of 6 people (great burgers and blackberry cobbler)!  Forgive the rest of us if we are not so thrilled.    How do you get a .4% drop in the unemployment rate with such a small number of new jobs?  If a student presented this type of data in a college classroom, he/she would fail the class!  It does not pass the  "red face test".

Yes, we understand the complex nature of these reports, how they are gathered, and on and on.   If someone has to explain a joke, it's not funny.  In the same vein, if someone has to explain all their complex formulas in order to reconcile two reports, it probably is not a very credible report.

Here are a few simple stats about unemployment in this country:

There are an estimated 5 million Americans that have "dropped out" of the workforce and are no longer counted toward unemployment.  They have simply given up looking for work!  According to the government, they are not unemployed, because they don't want a job!  They are not counted in the unemployment numbers.  If you add them to the "officially unemployed" 14.5 million people, that would make almost 20 million Americans without full time jobs, 33% higher than the government number.  That equates to about 1,650 people unemployed for every city, which means it will take a long, long time to get back all those jobs if we continue to add just 1 job per city each month!

Every year, over 1.5 million people enter the workforce looking for jobs after graduating from college.  That does not even include all the people that do not go to college and just start working!  This means that anything less than 125,000 new jobs produced each month results in higher unemployment!  We are at 36,000, nowhere near what we need.

The bottom line is that only large movements in the jobs numbers are credible.  Small moves up or down are likely within the margin for error and mean nothing.  If we see 500,000 new jobs created for 6 straight months, we can say for certain that unemployment is improving.   The chart below shows just how much ground we still need to make up.

Thursday, February 3, 2011

Jim Rodgers: "Buy Agricultural Products"

Two years ago, when Jim Rodgers began talking about food prices, nobody listened. We are still in the first inning of this food crisis.  Anybody not listening at this point needs to reevaluate their thinking...


How the Government Manipulates Inflation

Keep in mind this is for entertainment purposes only.  Some of this is accurate, however there is no reason to think that Bernanke is doing anything beyond trying to do what he thinks will work.  He is also a victim of the system and is forced to focus on short term results.

Wednesday, February 2, 2011

Tuesday, February 1, 2011

IMF Raises Spectre of Civil Wars

It is astonishing how quickly everything seems to be coming to a head.  Just one month ago those that were warning of food inflation and civil unrest seemed like "gloom and doom" prophets.  Now we are clearly in the middle of a remarkable chain of events.  

We always want to make sure we are looking forward on this blog and bringing subjects to your attention that are very relevant and extremely possible given recent history and basic economic principles.

Today the IMF sounded the alarm on the possibility of civil wars and political unrest on a scale that could signal the next leg down for the global economy.  That is not necessarily "breaking news", however what follows is something nobody wants to hear.  It is very likely that we can and will see unrest in the United States.  The scale of such unrest is not known, but when the government begins to cut our welfare and entitlement programs, and inflation spikes as a result of monetary policies, the poorest Americans will be hit the hardest.   People tend to react in a very aggressive and unpredictable manner when they are backed into a corner, have no hope, and nothing to lose.

IMF raises spectre of civil wars as global inequalities worsen
The International Monetary Fund (IMF) has warned that "dangerous" imbalances have emerged that threaten to derail global recovery and stoke tensions that may ultimately set off civil wars in deeply unequal countries.
8:22PM GMT 01 Feb 2011
Egyptian riot police clash with anti-government activists in Cairo, Egypt"Global unemployment remains at record highs, with widening income inequality adding to social strains," he said, citing turmoil in North Africa as a prelude to what may happen as 400m youths join the workforce over the next decade. "We could see rising social and political instability within nations – even war," he said.
The IMF has published a paper entitled Inequality, Leverage and Crisis arguing that the extreme gap between rich and poor – with echoes of the US in the late 1920s – was an underlying cause of the Great Recession from 2008-2009.
The paper, by the Fund's modelling unit, warned of "disastrous consequences" for the world economy unless workers regain their "bargaining power" against rentiers. It suggests radical changes to the tax system and debt relief for workers.
Mr Strauss-Kahn said the toxic global imbalances that caused the financial crisis are re-emerging, naming China and Germany as the two arch-sinners that rely on export surpluses to power growth at the expense of the US and other deficit countries.
"The most important question is to deal with the recurrent problem of some countries' large external surpluses," he said, warning that failure to curb excesses will lead to global clashes and rising protectionism in trade and finance.
In a veiled warning to China and other countries holding down their currencies for commercial advantage, the IMF chief said "exchange-rate adjustment should not be resisted". Nor should capital controls be imposed to stop the inflow of funds.
The comments appear to align the IMF behind Washington in the simmering dispute over the declining dollar. China and Brazil have accused the US of covert currency warfare through quantitative easing, but the claim is slippery since the US has a huge structural trade deficit.
Mr Strauss-Kahn also hinted that parts of Asia are exceeding the safe speed limit for growth and needed to "tighten" further before inflation gets out of control. "There are risks of overheating, and even a hard landing," he said.  
          >>  Source: The Telegraph 

Why You Can't Trust the Inflation Numbers

It is very refreshing to see this article come out of the Wall Street Journal.   It is well known by economists that the government has changed the way it calculates inflation over the years.  However very few people on "Main Street" are aware of this or even take the time to understand the implications.   Here is the bottom line... every government statistic should be viewed with skepticism.   No, this is not a conspiracy, just hard working people that are trying to do better but end up creating more problems.  Either that, or they are so deeply entrenched in the system (Mr. Bernanke) that they have no choice but to tow the company line.  Either way, the losers are the American people.




Why You Can't Trust the Inflation Numbers 
A surprising number of people on Wall Street will tell you not to worry too much about inflation. 
After all, they'll say, just look at the numbers. The inflation picture is incredibly benign. In the past 12 months the Consumer Price Index has risen just 1.5%—a remarkably low rate. And when you strip out volatile food and energy costs, they'll say, it's even lower—a meager 0.8%. 
It doesn't stop there. Many economists will point out that wages are also rising by less than 2% a year. With so many people still out of work, goes the line, labor costs are going to stay low for a long time too. So what's the worry? 
Clearly, a lot of investors agree. Inflation-protected government bonds, which people would buy to protect themselves if they were worried, have fallen in price in the past couple of months. Gold, another inflation hedge, is down. Ten-year Treasury bonds yield less—3.3%—than they did when President Eisenhower left office. 
It's crazy. There is plenty to worry about. As you battle to manage your family's finances, be aware that there are three reasons why inflation needs to be on your radar screen. 
First, the official inflation numbers should be taken with a fistful of salt. 
Over the past 30 years, the federal government has made a lot of changes to the way it calculates inflation. It's taken place under presidents of both parties. Each change in methodology has come with plausible-sounding justifications. But, as if by magic, each change has had the effect of flattering the numbers. Funny, that. 
There are a few reasons investors might be wary of the Treasury market, says Brett Arends. Yet investment strategist Richard Bernstein explains why he's bullish on the dollar. And, advisers can help clients take emotions out of their investment decisions. Dow Jones Wealth Adviser's Veronica Dagher reports. 
According to one rogue economist, John Williams at Shadow Government Statistics, if we still calculated inflation the way we did when Jimmy Carter was president, the official inflation figures would look about as bad as they did when ... Jimmy Carter was president. According to Mr. Williams's calculations, if we counted inflation under the old system the official rate wouldn't be 1.5%. It would be closer to 10%. 
Mr. Williams is just one voice. But it makes sense to treat the government numbers with skepticism. 
Under the official calculations, if steak prices boom, the government just assumes you buy cheaper hamburger instead. Presto—no inflation! 
Or consider the case of Apple computers. We all know Macs are expensive. And we know Apple doesn't discount. The cheapest Mac laptop today costs $999. A few years ago, it also cost $999. So the price is the same, right? 
Ha. Not according Uncle Sam. Using a piece of chicanery called "hedonics," Uncle Sam calls this a price cut. His reasoning? You're getting more for the money. Today's $999 Mac is lighter, fancier and faster than last year's $999 Mac. So the government calculates that the "real" price has actually fallen. 
How's that work in the real world? Try it. Go into your local Apple store and ask for 50% off thanks to hedonics. (If you do, please, please video the exchange and put in YouTube. We could all use a good laugh.) 
Instead, the government is worrying about deflation, partly because of all the "cheap" MacBooks out there. 
The second reason to treat the official inflation figures with some mistrust is that they look backward. They register what just happened, not what's about to happen next. 
OK, so the prices of many things haven't risen. Yet. But if the laws of economics mean anything, they will have to. Why? Because costs are rising. 
Economists need to stop focusing just on labor costs. The world has plenty of surplus labor. But look at raw materials. Around the world prices are skyrocketing, from copper to cocoa. The United Nations Food Price Index has just hit a new record high. Oil's back near $90 a barrel. Wheat prices have nearly doubled since last summer. 
Soaring food prices helped spark the revolution in Tunisia. According to Alex Bos, commodities analyst at Macquarie Securities in London, other governments—especially in North Africa—have responded with panic buying of foodstuffs. 
Algeria alone, he says, has bought about 1.5 million tons of wheat this month—maybe triple its usual amount. Saudi Arabia is rushing to build up grain supplies. Corn supplies are as tight as they were back in the inflationary 1970s. 
Sooner or later this is going to show up in your supermarket, or at the mall, in higher prices. 
Just ask McDonald's. Or paints and plastics giant DuPont. Or Kleenex and Huggies maker Kimberly-Clark. Or 3M. Or Coach. These companies, and many others, have warned in recent days that they're getting squeezed by rising costs. They'll either eat the costs, which will hit the stock, or pass them on. How is this not inflation? 
The third reason to be mistrustful of the inflation picture? Simple. Economics. 
We are flooding the world with extra dollars. The Fed simply invents as many as it likes. In the past couple of years, to try to keep the economy out of a tailspin, it has more than doubled the size of the so-called monetary base. 
A dollar bill has no intrinsic value. Dollars are only "worth" something because you can exchange them for a haircut, or a pair of shoes, or a book from Amazon.com. So if you drastically increase the number of dollars without a commensurate increase in the number of goods and services, each dollar must, by definition, be worth less. That's another way of describing inflation. 
So far, this inflation seems to have shown up in the unlikeliest of places. It's like Whac-A-Mole. The price of vintage wines has skyrocketed 57% in the past year, according to the Liv-ex Fine Wine 50 Index. Real estate prices across China are in a bubble. So long as the Chinese tie themselves to the U.S. dollar, they are importing our inflation. But, once again, one wonders how this can be called benign. 
Is inflation certain? I'm wary of any predictions. Casey Stengel once said, "Never make predictions, especially about the future." Mr. Stengel would have lasted three days as a Wall Street analyst. But he won five World Series in a row, and he knew a thing or two.
Maybe inflation really will stay tame. But I'm not counting on it. I'm not buying the conventional wisdom, and neither should you. 
Source: Wall Street Journal – Brett Arends

Deeper Implications of Middle East Turmoil

It is important to understand how the events unfolding in the Middle East can and will affect the rest of the world, including the United States.  The markets and media are not discussing these issues to the extent needed, so we want to share some excerpt from an article by Mercenary Trader that addresses some of these issues. Notice that many of these fall under the theme of "increased inflation".

Increased pressure on U.S. consumer discretionary income. Higher food and energy prices act like a regressive consumption tax, taking money from consumer wallets and hitting lower income spenders the hardest (as food and energy is a higher proportion of total budgets). The frightening possibility here is that the recent uptick in consumer spending, a possible “wealth effect” brought about by QE2 and rising markets, could dissipate just as the real pain of rising gas and grocery costs begins to bite.
Increased pressure on corporate profit margins. There are certain industries and sectors that do quite well against a backdrop of rising food and energy prices. Unfortunately, most do not. Investors conveniently forget it was inflation that Businessweek blamed for “The Death of Equities” when the famous cover ran in the late 70s. (The 1979 subtitle: “How Inflation is Destroying the Market.”) We are in the early stages of a potential new inflation cycle with profit expectations unduly optimistic. Rising input costs on the food, energy and materials side could hit corporate margins just as the long stretch of productivity gains from cost-cuts peters out.
Increased risk of recession via deflationary shock. As we noted in Deflationists Still In It To Win It, a key argument of those still bearish is that the anemic U.S. recovery, driven as it is by stimulus drugs and thinly justified hopes, is still vulnerable to exogenous shock. Along with multiple other candidates, a further surge in oil prices could be that shock. As James Hamilton of Econbrowser notes in respect to oil market disruptions and economic downturns since WWII, “Every recession (with one exception) was preceded by an increase in oil prices, and every oil market disruption (with one exception) was followed by an economic recession.”
            >> Read full article

February Free Charts - GE & Gold

Our readers have voted and we are now providing free charts of GE and Gold (GLD) in our guest area.  Both investments are still in up trends, however GE is near major resistance around $21.  The resistance goes all the way back to before the crash.  If GE can break through this level it could go significantly higher in the short term.

Gold has been in a strong up trend for over 10 years.  The trend has accelerated in the last number of years.  The pullback in Gold has brought it down near some recent trend lines, however as of today the trends are still holding.  We would likely short GLD near $125, however that would depend on price action, indicators, and news events.  With the current unrest in the Middle East, it is hard to imagine Gold pulling back significantly right now, although anything is possible.

Do you want to see different charts next month?  It's all up to you!  Just vote in our poll and share with your friends so they can vote too.