Best Quotes of March 2009
EVERYTHING is mispriced for what is unfolding. Stocks, Bonds, currencies, natural resources, precious metals, real estate are ALL set for massive VOLATILITY and "volatility is opportunity" for the prepared investor. Markets are going to ZOOM up and down and provide you with EXCELLENT investment opportunities if you are properly prepared. Buy and hold is DEAD except for the precious metals.
Every emotional extreme always evokes its own reversal. There has never once been an exception to this rule - not once! A typical response to this would be, "But this time is different!" No my friends, it's never different when it comes to the stock market. When we're dealing with the market we're dealing with primitive human nature, which never changes through time. Greed carries the seeds of its own destruction just as fear carries it own self-destruct mechanism. That's really the basis of the cycle principle, the fact that emotional extremes always reverse when they are stretched too far in one direction. We've already seen greed stretched to its outer limit in the 2003-2007 bull market. Now we're witnessing fear test its outer limits. It's tempting to conclude that fear, unlike greed, can keep perpetuating itself ad infinitum but this conclusion isn't supported by what we know to be true about human nature through the lens of market history.
Engelhardt, American Empire Project
Broadway in daylight now seems increasingly like an archeological dig in the making. Those storefronts with their fading decals ("Zagat rated") and their old signs look, for all the world, like teeth knocked out of a mouth. In a city in which a section of Broadway was once known as the Great White Way for its profligate use of electricity, and everything normally is aglow at any hour, these dead commercial spaces feel like so many tiny black holes. Get on the wrong set of streets - Broadway is hardly the worst - and New York can easily seem like a creeping vision of Hell, not as fire but as darkness slowly snuffing out the blaze of life.
Gloom, Boom & Doom Report
Even in the 19th century, under the gold standard, from time-to-time investment manias and bubbles developed in railroads and in canals and in real estate, just to name a few. Under a fixed monetary, or gold, standard, where the quantity of money cannot be increased indefinitely, there is a natural limit to the scale of the crisis. Usually when there's a boom in one sector of the economy, you have some kind of deflation somewhere else; that was also the case in the 1970s. We had a boom in commodities, but bond prices collapsed.
What Mr. Greenspan and Mr. Bernanke have achieved is historically quite unique. They have managed to create a bubble in everything, everywhere in the world: in real estate, equities, commodities, art, worthless collectibles; even bond prices continued to rise as interest rates fell due to loose monetary policy. Since 2007 and 2008, everything has collapsed. But government bond prices continue to rise, and went ballistic between November 2008 and December 2008, when 10- and 30-year Treasury yields collapsed. So my view would be that this was the last bubble they managed to inflate. From here on, the government bond market will fall. In other worlds, the trend will be for interest rates to actually go up.
My fellow citizens of planet Earth, it is now abundantly clear that the trend toward socialism in all its many disguises is about to, once again, shift into high gear.
We've been here before, encouraged by the words of Karl Marx, a distinctly unsuccessful individual (to read his life story is to read of almost unending misery, poverty, and discontent) but a decidedly successful phrase-coiner, knocking the world off its axis with his "From each according to his ability, to each according to his need."
While no one with any real sense of history, not to mention economics, can take any overt joy at the prospect of the dark clouds of collectivism looming high in the sky above us, there is, if you pay close attention, a very big opportunity in all of this. Namely, we are now presented with a relatively rare chance to see with some clarity into the future. Imagine if eight years from now you could step into a time machine and zip right back to this very moment. How much money do you think you could make?
Well, just because the chattering masses have the blinders on as they march forward to their collective penury doesn't mean we need to join them. And, if we are even a little bit careful, we won't. So, what is it about the future we can now see? Some broad strokes...
- Currency depreciation.
- More taxes.
- Rising interest rates.
- A price capitulation in real estate, with a collapse in commercial.
- Exchange controls (now that Team Obama is raising your taxes, you don't really think they're going to let you pick up your wealth and leave, do you? The window for global diversification will soon be closing.)
- The return of mega-labor unions.
- Trade wars, shooting wars, and other forms of heightened geopolitical tension.
Provided you keep your personal wealth profile low (there was a reason Sam Walton, founder of Walmart, drove a beat-up pickup truck), your financial powder dry, and, maybe most important of all, retain your sense of humor, the opportunities in the unfolding crisis will be abundant.
While China has not stopped (yet) buying $12 billion in Treasuries, 95% of its recent purchases have been in short-term T-bills. Lower interest rates on the T-Bonds will not encourage China or any other foreign investors to increase their long-term commitments to Treasuries and agency debt.
In fact, at Casey Research we expect that very soon, foreigners will demand much higher returns for their dollar investment. At that point, the Fed has to either let rates rise (difficult politically) or expand its purchase of Treasuries to whatever level will be needed to support the budget deficit and bailouts. Already, foreign investors have cautioned the Obama administration about their concerns with the extensive use of the printing presses and the impact this will have on the value of their assets.
However, foreigners do not vote. Thus we can be assured that the administration is going to favor printing over raising interest rates... that is, until foreigners start withdrawing some of the trillions of dollars they have invested in government and Treasury debts ($2 to $3 trillion of which is coming to maturity in the next year).
We could soon see the next phase to this crisis, a stampede away from the dollar. Like any bubble, the government debt bubble may take a long time before it finally bursts - and you need to be ready for the pop because its consequences will be far reaching for America and the world.
Peter Grandich, The Grandich Letter
I think the no-brainer play is shorting the 10 and 30 year Treasuries. Interest rates can only go much higher over the coming years no matter what the economy does. There's no instant gratification in this trade unless you're trading the futures themselves, but at the same time, it's the least risky of all the suggested plays of mine. Sorry Uncle Sam.
We have long warned that this depression will be as severe in terms of falling output and employment as the early 1980s recession. But a crucial difference between that recession and this depression bears repeating: the Fed created the early 1980s recession on purpose, and has done everything in its power to prevent the current collapse, to no avail.
The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government-a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF's staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we're running out of time.
But there's a deeper and more disturbing similarity: elite business interests-financiers, in the case of the U.S.-played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.
The Gold Report: You say in your "Greg's Crystal Ball" section that you think the mania phase is going to start happening sometime next year, in 2010.
Greg McCoach: I think by the end of this year things are going to be so bad worldwide that gold is going to become headline news and that will become the driving force towards the parabolic moves. What's happening right now is that the big money is still playing the paper game of musical chairs. "Paper musical chairs," I call it. When the music stops, people run from one chair to the other chair looking for safety. They run from bonds to dollars to Euros, etc., trying to find the safest place. But they're not finding it. Why? Because the paper system as we've known it is unraveling. So people are trying to chase safety. Well, they can't find it because it doesn't exist. They go into dollars, and they feel comfortable there for a little while; then suddenly the dollar tanks again, and then they run out of the dollar to another paper currency.
Ultimately, when the music stops, they're not going to run to a chair; they're going to run for the exits. When that happens, they're going to discover the asset class known as gold. That's when these parabolic moves are going to happen. As that happens of course, the select precious metal mining stocks will move up accordingly. The leverage investors can get will be phenomenal during such a scenario.
Noland, Prudent Bear
I suppose I'll for now reside in the camp that believes the system is perhaps not today as acutely unstable as many fear. The unfolding Government Finance Bubble is - until it isn't - a major stabilizing force. Government finance by its nature will not exert sufficient stimulus to rejuvenate deflating asset markets, but it is nonetheless playing a major role in underpinning wages and incomes. Moreover, the massive inflation of government finance is thus far bolstering the markets' perception of "moneyness" for tens of Trillions of Treasury, agency debt, MBS, municipal, corporate and household debt securities, along with another ten Trillion or so of bank deposits and money fund liabilities. This "bolstering" of "moneyness" is also likely central to the resilience of the dollar. But such extraordinary stabilization does not come without a heavy price. I am firmly in the camp that believes that Washington is now trapped in a massive inflation of government obligations - the latest round of historic Credit inflation captured clearly throughout the Q4 2008 "Flow of Funds" data. The worst case scenario unfolds when our creditors and the marketplace turn against these government obligations.
Sascha Opel, Orsus Consult GmbH
The Gold Report: Sascha, we last interviewed you in May 2008. At that time you felt that we were beginning a period of re-establishing gold as currency. Would you review your thinking on this viewpoint for our readers?
Sascha Opel: In our last interview, I said, "Long-lasting gold bull markets take place when gold's role as money is being re-established. In my opinion, we are just beginning this period of re-establishment. Those calling for the end of the precious metals bull market any time soon are sadly mistaken." Today, although nine months have passed, we are still in the beginning of that period. Look at the gold price in all currencies around the world - not only in U.S. dollars. Look at the price in Euro, Canadian dollars, South African rand, Australian dollars, British pound, Norwegian krone, Russian rubles, Swiss francs etc. Gold is now starting to establish new all-time highs in all those currencies. The masses will slowly realize that no paper currency is safe in the near future.
TGR: What factors should investors look for as a signal for gold to "take off?" What factors should investors be looking for that gold has peaked? Should we expect gold to peak in 2009?
SO: I am absolutely convinced that we will not peak in 2009! I believe that the price of gold is manipulated. I believe that we will go over US$1,200 by the end of 2009, but I am not sure if we can defend that level. The establishment surely will do something so that the price will not go too high in too short a time. In looking back at the rise of gold from $35 to $850 during the '70s, the former Fed Chairman Paul Volcker said, "It was probably a mistake to allow gold to rise so high." And Volcker now is on the Obama-Team! We will not have a peak like 1980, but gold will rise constantly. Buying on dips like in autumn 2008 is the best strategy, in my opinion. Perhaps sometime later (in a few years, but not '09) gold will start to move US$50 or US$100 for some days in a row to US$2,500 or more. Then I would sell or hedge some "virtual" gold over the markets (futures, ETFs, short-certificates etc.), but I would not sell the physical stuff!
When a company makes a profit, it is a signal that it is taking resources and increasing their value while controlling costs. When a company operates at a loss, it is a signal that it is decreasing the value of its resources or letting out-of-control costs outstrip any value it has created. A company operating at a loss is therefore an engine of wealth destruction. Bankruptcies are a net positive for the economy because more productive competitors are rewarded by opportunities to buy up remaining assets at bargain prices to strengthen their operations. In an economy that allows this kind of growth and change, any jobs lost by bankruptcy are soon replaced by new ones as the most efficiently managed businesses gain access to more assets and expand.
Bankruptcy was the stimulus that we needed in the case of AIG. More bankruptcies would clean out malinvested resources and enable economic growth again. AIG, by losing money and maneuvering their operations to the brink of bankruptcy, was telling us that they were inefficient. So what did we do? We forced the taxpayer to assume the losses, and now we are supposed to be shocked that it is not working out. Had AIG gone bankrupt, it would have been impossible to hand out these bonuses. The taxpayer would have been fleeced for $170 billion less last year. Had they gone bankrupt, the world would not have come to an end, it would just continue on with one less engine of wealth destruction.
A recession should be a time of strengthening and regrouping for an economy. But as long as the government insists on maintaining the status quo by propping up failed institutions, we will continue to dig a bigger hole for ourselves.
Michael S. Rozeff,
Systemic risk is mitigated when individual firms mitigate their own risks. It is not mitigated when those risks are centralized in a few large firms with a government backup. That creates systemic risk. Decentralization and risk-avoidance mitigate systemic risk. Both of those are encouraged in money, capital, and banking markets not controlled and regulated by the federal government and the FED.
The systemic risk of counterparties and the systemic risk of unknown valuations of assets held by financial firms are no closer to resolution today than a year ago. We now have new and enhanced systemic risks. They include the risk of the FED's balance sheet, currency risk, and government bond default risk. There is actually an enhanced risk of wealth destruction due to the programs being broached by the Obama government that promise a stagnant, over-taxed, and inefficient economy. A drop of stock prices of 75-90 percent is not out of the question.
Euro Pacific Capital
This week, with his pronouncement that "credit is the lifeblood of a healthy economy," President Obama reiterated what has been one of his most common themes in diagnosing our economic problem. The president has relied on this bedrock belief to propose policies that place the restoration of credit as the highest priority. However, despite his seemingly earnest intentions, the president and his economic advisors have misdiagnosed the ailment. Savings, not credit, is the lifeblood of a healthy economy. When not used properly credit can be like a cancer that sickens an otherwise healthy economy.
What everyone seems to have forgotten at this point is that credit does not come from thin air. Even in a system in which bank reserves are leveraged many times, someone has to put savings in a bank for the bank to turn around and make a loan. As a result, the bedrock is the savings, which allows for the credit to flow. Credit extended without adequate savings inevitably leads an economy into disaster.
The primary mechanism that has injected credit where it does not belong is the massive credit card industry that has developed in the United States over the last generation. The ease with which these cards may be obtained and the degree to which Americans now rely on them for routine purchases has created a culture of credit that simply has no precedent in a healthy economy. Until this culture has been reformed, America's fight to restore economic vitality will be a lost cause.
Quinn, Burning Platform
The future is cloudy but the direction is clear. Government will spend trillions of dollars. Congress will increase taxes on the rich and secretly raise taxes on the masses by calling them cap and trade fees. The Federal Reserve will pull out all stops to create inflation. When you owe the rest of the world $11 trillion, inflation makes the debt less burdensome. The dollar will decline versus gold. With the enormous amount of currency creation and spending by the government, the economy will eventually pull out of this depression. The acceleration will take the Federal Reserve by surprise. They will be hesitant to raise interest rates. The inflation genie will get out of the bottle and will not go back. The hyperinflation that takes hold will lead to social unrest, rioting, and a drastic reduction in the American standard of living.
There is no solution that will not be painful to everyone in the United States. The only solution that would put America back on a path of sustainable prosperity would be a gold/precious metals backed currency that would force government and its citizens to live within its means. Congress would need to vote for something that would take away its power. With our current political system, this is impossible. Money is power. This leads to only one conclusion. The existing Ponzi scheme will have to collapse before we can adopt a rational financial system for America.
Taibbi, Rolling Stone
The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.
Weber, European Central Bank
I can promise you the European response to this crisis will not be inflationary -- that is why guys like me exist.