Wednesday, June 6, 2012

Nothing Has Changed Since 2008.

Yes there has been a period of “normalcy” over the last four years but it is merely an illusion.

The following is my list documenting why we are not back to normal and have nothing resembling a free market where investors are treated fairly and businesses can plan for growth.

  • The Western countries face $70 Trillion in debt they cannot repay that backs $700 Trillion in derivatives the banks have created.
  • Banks no longer use mark-to-market accounting for “assets” such as mortgages but rather use mark-to-model, or as it’s often referred to: mark-to-fantasy.
  • US Banks only seem profitable because an accounting trick allows them to post “profits” from bonds they owe when interest rates decline. This is merely “phantom income”.
  • The Fed has bought many of their worst performing “assets” despite the fact they will likely never be repaid (at a loss to the taxpayer)
  • The Fed has lowered borrowing for big banks to nearly zero (ZIRP), allowing banks to earn money by borrowing money from the Fed and buying US Treasuries that do earn interest, courtesy of the US tax payer.
  • The US annual budget deficit remains above $1 Trillion for four straight years in a row.
  • Every major currency including the Japanese Yen, British pound, Swiss franc, Euro and of course the US dollar, has been devalued in the last four years.
  • Major Euro countries such as Greece, Spain, Portugal, Italy, Belgium and even France are essentially in an economic depression and are nearly insolvent. Spanish and Belgium banks have gone under.
  • The rule of law (and especially commerce) has been undermined by the bailouts of car companies where senior debt holders lost everything and the company was illegally handed to the auto unions, by a failure to prosecute Jon Corzine of MF Global who likely stole segregated client money to pay a losing gamble on European bonds and finally the Solyndra debacle that showed friends of the administration could get $ ½ Billion in loan guarantees while those same friends and campaign contributors remain first in line to get paid back once it failed.
  • The corruption of markets by high frequency trading algos and quote stuffing that has manipulated stock prices and set off multiple flash crashes.
  • The manipulation in all markets from currency, commodities, stocks, bonds and interest rates by the Federal Reserve in an attempt to “engineer” a recovery.
  • The failure of Dodd-Frank to even be fully implemented nearly two years after it was passed.
  • A stealth tax increase coming to all Americans as stages of the Health Care Reform Act are implemented (including a tax on home sales).
  • A nearly doubling of the cost (according to the non-partisan Congressional Budget Office) of the Health Care Reform Act from $950 Billion to nearly $2 Trillion over the next ten years.
  • A tax increase “apocalypse” coming at the end of this year if a completely divided Congress fails to come to a difficult resolution on spending.
  • Another US national debt ceiling fight coming this September as we once again bump up against the debt ceiling in the fall.
This is just a partial list, but it summarizes why with all my experience in investing, I cannot in good conscience advise individuals with hopes and dreams of a comfortable retirement to invest in markets at this point. My nearly nauseating attention to precious metals has been based on the idea that global deleveraging would lead to currency devaluation and asset (read stocks and bonds) deflation or even destruction by systemic failure, and that precious metals are the best candidate in weathering the storm to come.

From this point on I will likely focus, not on trying to convince people of the danger, but on documenting the happenings in the market in a ways that my readers can understand. 

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