Fingers of Instability, Part III

By: Ty Andros | Fri, Mar 23, 2007
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"The Economic and Financial NO SPIN Zone"

In this edition of Tedbits we are going to look at how the fingers of instability will be rolling along in these three areas and how the laws of unintended consequences are set to bite very very hard. We also are going to ask you to help us meet people. If you enjoy our work please send it to a friend, subscriptions are free - www.TraderView.com - and the publishing of Tedbits is set to accelerate to a weekly schedule. So you can expect it on Thursdays or Fridays as you head into your weekends. There will be special releases on breaking stories. We will also be adding some micro market analysis to accompany the macro work. Join Tedbits as it moves into the future, and help us meet people! Send it to a friend please and urge them to do likewise and subscribe themselves.

In This Issue

Sub prime woes part II, "Arm" ageddon dead ahead.
The Federal Reserve is in-between the proverbial rock and a hard Place, aka Groundhog Day!! LOL.
Shift Happens and its set to accelerate.

Sub prime woes part II, "Arm"ageddon dead ahead

As regular readers know I started talking about the mortgage woes set to explode in the fall of 2005 and coined the phrase "ARM"ageddon at that time. Now we have part II of the unfolding sub prime problems, and they are called "EXPLODING ARMS" and rolling ARMS (Adjustable Rate Mortgages) and they are resetting en masse as we speak, and resetting is a mild term as many of the 2 or 3% teaser rates are going up over 100%, payments are skyrocketing by amounts ranging from 30 to 130%, a challenging increase even for the most qualified homeowner, the end of the line for the least qualified. I wrote in October 2005 how the people that were using the adjustable rate mortgage market were involved with unscrupulous lenders with dubious lending standards in cahoots with realtors/assessors and the financial/mainstream media feeding the mania of this "SURE THING" and that it was going to end up destroying many many people. Many more of these borrowers are no doc, or lied on their applications (recent surveys put the number of falsely stated incomes in these mortgages as high as 65%).

I have written on this subject many times since as ridiculous new twists emerged. We are all well aware of the sub prime woes which now have taken down over 40 sub prime lenders and have provoked battles between these front line lenders and their masters at the big banks and brokerages in New York and around the world. Their masters in the fact that these groups spearheaded the securitizations and derivatizations of these mortgages, into multiple products (CDO's, CMO's, credit default swaps, etc.) which these banks and brokerages used to create many new ways to "PRINT MONEY". These financial products have been the source of soo sooo many of the unbelievable profits rolling out of the financial and banking communities. It allowed these entities such as Goldman Sachs, Morgan Stanley, Merrill lynch, Citigroup, JPMorgan Chase, to morph into poorly disguised hedgefunds, and speculative machines with the higher profit profiles they reflect. Lets take a look at the data as this problem is just getting started;

The war over sub prime mortgages is now in full swing, as the issuers of these bombs like products are now demanding that the originators of the loans take them back. The originators don't have the money to take them back, and even if they did, they wouldn't, as it is a recipe for their demise. "BALANCE SHEET BOMBSHELLS AND LEGAL LIABILITIES" It is a giant game of hot potato and "pin the tail on the donkey" before the attorneys begin their class actions and the US congress sets up the meat grinders. Millions and millions of people (the victims), and dozens of international, and institutional investors (fiduciarily challenged) are set to do battle. But chapter two is just starting as this debacle begins to mushroom like a nuclear bomb blast. The dogfights over who ends up holding the bag are only just beginning.

We are now going to get a close up look at regulators malfeasance (the fed, treasury, of the, Office of the comptroller of the currency, state regulators, Office of thrift supervision etc. in supervising the industry as this debacle grew in scope since 2002).

Contract law is now a thing of the past, as the words that were printed and agreed to (RISK DISCLOSURE) in the contract are rendered meaningless. One of the reasons capital is fleeing the US is that it doesn't matter how much risk disclosure is done and agreed to between the counterparties, the tort system here just weasels around the language, and of course the disclosure is so much legalese (government mandated eye glazing gibberish) as to be almost undecipherable by anyone including the lawyers and the compliance departments. You can Say as many times as you like "you can lose money" it counts for nothing!!!

If the loser has a good lawyer, his agreement and express acknowledgements to take the risk are as worthless as the paper it is written on. The financial regulators have eviscerated the disclosure process, a contract and agreement is no longer binding between the parties. The regulators mandated pages and pages of incomprehensible risk disclosure, then when the buyer said he didn't understand it they take the clients side against the vendor. The vendor meanwhile has done everything demanded of them by these same industry regulators. And unlike the rest of the world the loser in the United States doesn't pay for frivolous lawsuits they bring into the legal process. It is frightening as the rule of law is destroyed on the alter of "protecting the consumer" as if he is a mindless idiot incapable of reading and agreeing to a contract that is written out in black and white.

The sub prime mortgage market is in full meltdown and the babies are being thrown out with the bathwater. The mortgage market has stopped in its tracks; even qualified borrowers are shut out of the market for borrowing. And it is creeping higher on the credit ratings ladder every day, as more qualified buyers are unable to finance anything in real estate. Rather than add to their existing problems lending institutions are halting all new business (to good and bad risks alike) till they sort out existing problems. Unfortunately they are doing so into the oncoming headlights of a $1.5 trillion dollar freight train. And this train must not be allowed to run off the rails or we are all "DOOMED" as the Mogambo guru puts it. This is Ben Bernanke's first big moment and challenge (it will dwarf the challenge he faced in May/July of last year) as Federal Reserve chairman and there is only one option that can be chosen.

In Last Saturdays New York Times it outlines a homeowner caught in the "ARM" twisting wind. His mortgage has now reset after just two years at the teaser rate. His payment has skyrocketed 30 to 40 percent and he bought his home at the heights of overvaluation in 2005, and it has now lost 20 to 30% of the appraised value at that time. He could barely meet the payments on his $14.50 cent an hour job before it reset, now he can't meet them at all. Question; How did this guy get financed in the first place? He was NEVER qualified for the loan, we all want the best for people and hope for the best. But the regulators lack of oversight of the lenders allowed this man to hang himself and his future and provided the rope by allowing these predatory lending practices to employed (the regulators, Federal Reserve aka Greenspan and Congress were encouraging this behavior). There are millions of these stories unfolding as we speak, and they will be left holding the bag (their biggest lenders and facilitators will be saved by the financial authorities). In the name of having and promoting the American dream anyone was allowed to borrow and spend on a home. Bush crowed about the big surge in Home ownership in speeches and the State of the Union Address.

Anyone remember Greenspan extolling the virtues of Adjustable rate mortgages in the Humphrey Hawkins testimony to congress in 2004? And how about his extolling of the virtues of Mortgage equity withdrawal in the same testimony in 2005? Or his spearheading the inflation of the housing asset bubble with below inflation interest rates for over two years, fueling the malinvestments and miscalculations by the least informed of the populous. And off course the praise out of our Congressional and executive branches of government were deafening as they whole-heartedly endorsed his policies. I remember the love fest clearly as both sides of the aisle fawned over the Chairman and his easy money policies.

Government's fingerprints are all over this debacle as they encouraged this recklessness so they could be reelected to "KEEP THE GOOD TIMES ROLLING" no matter what the long term implications to the economy may be. Political solutions to practical problems and fiduciarily sound regulatory oversight. They would endorse anything to get reelected!! All policy decisions are now carefully implemented for the election directly ahead, in this case it is 2008 (see attack of the locusts in the Tedbits archives at www.TraderView.com). Then it was 2006. No consideration is given to 2010, 2015, and 2020 or beyond. Now it is just a game of kick the problem down the road and let some other politician deal with it when he or she has to be reelected at that time. What a great recipe for good governance?

You remember Long Term Capital Management; it was a hedgefund that was rescued in 1998. A good description of this group is provided by Ibrahim Warde in his 1998 commentary on crony capitalism "At the beginning of the year, LTCM had capital of $4.8 billion, a portfolio of $200 billion (borrowing capacity in terms of leverage) and derivatives with a notional value of $1,250 billion.

But the banks had put their faith in the fund's pedigree and reputation. The founder, John Meriwether, was a legendary trader who, after a spectacular career, had left Salomon Brothers following a scandal over the purchase of US Treasury bonds. This had not tarnished his reputation or dented his confidence. Asked whether he believed in efficient markets, he replied: "I MAKE them efficient" (3). Moreover, the fund's principal shareholders included two eminent experts in the "science" of risk, Myron Scholes and Robert Merton, who had been awarded the Nobel prize for economics in 1997 for their work on derivatives, and a dazzling array of professors of finance, young doctors of mathematics and physics and other "rocket scientists" capable of inventing extremely complex, daring and profitable financial schemes.". Thank you, Ibrahim for this great description.

This description is applicable to today's securitized and derivatized mortgage and finance industry as purveyed by biggest brokerages and the big banks. However the size of the market in today's terms dwarfs those in 1998, as hundreds of trillions of these "new financial inventions" have become common practice worldwide. It is all a big cabal of statistical modeling and big money crony capitalism as practiced in the financial centers of the world. Their pedigrees and big money preclude close inspection of the details and of course the details are indecipherable anyway. We are now all learning the dirty little details, of these unfolding debacles as they roll across America. And by extension investors across the rest of the world as they hold the paper these products were written on. Think "HEDGE FUNDS", pension funds, retirees, and investment banks with the biggest players "leveraged on top" of the leverage incorporated into the products themselves...

Now that we understand whose OX will soon be gored if these ARMS can't roll over and stabilize? And at this point there is no way the current credit market will accommodate this process. $1.5 trillion dollars of balance sheet bombshells with 10's trillions of dollars of other financial products spun around the core Mortgage paper. The problem are far bigger than is being currently reported. This is purely deflation in a credit and inflation dependant world economy. The watchwords of an asset dependant world economy are; "INFLATE OR DIE". The biggest money in the world will soon be knocking at the doors of Congress and the Federal Reserve to stop this now, before it hits their balance sheets and they are brought down like dominoes.

The Federal Reserve and Treasury will be forced to convene a LTCM like rescue conference, BEFORE the dominoes really start falling hard. The Federal Reserve will as quietly as possible be the lender of last resort and MONETIZE (print the money) the debt. Saving the financial system and the systemic threat this represents. Instructions will be given to keep lending and allowing these underwater loans to roll with a government guarantee aka the American taxpayer. Moral hazard piled on Moral hazard, as all things are when Central banks and economies are run in this manner. And of course it is Middle America they are protecting, as the wealth of the nation is tightly linked to real estate values, home and commercial.

Who will get these properties as they fall into default? Why of course it will be the biggest insiders on Wall Street and the BIG banks who facilitated and profited from this debacle with the explicit or implicit endorsement of the Greenspan Federal Reserve, the Bush administration and US Treasury. They will get these properties at huge discounts and hold them as rentals (the rentals will easily pay the mortgage as they get the property at 50% discounts or more) till values recover and they can really capture the capital gains that the money printing guarantees them in the future. Thus being rewarded by the federal government for their cooperation in mopping up this grisly episode in fiat money and credit creation. Just as they were with Amaranth, and LTCM.

Understand that the big money is made in a fiat currency and credit environment by those groups who get the freshly minted cash and credit first (as mentioned above these insiders will get the newly minted cash and credit first and clean up), they stand to make the most, every time it recycles the returns are slightly less for each generation of cash/credit holder. The little guy always gets the cash last so, the real losers are the little guys who bought the hype and don't have enough money and friends in high places to save their skins as they will be impoverished for life as the NEW BANKRUPTSY LAW turns them into indentured surfs of their predatory and reckless lenders... And because of this...

The Federal Reserve is in-between the proverbial rock and a hard place, moral hazard written again and again, aka "Groundhog day" LOL.

I am sick I didn't send you this when I wrote this on Sunday March 18th ... what I wrote here is written deeply in the revised FOMC statement...

Money, credit and economic growth have been tremendous for years now. The previous Tedbit is a story of an asset bubble and its consequences caused by years of reckless easy money/credit and the miscalculations that things can go on forever without having corrections to purge the poisons in the system. This is a story of inflation written widely in everything we consume. But instead of administering the medicine of "taking the punch bowl away" the fed will be forced to add another round of stimulus be loosed on the world to save the financial systems from implosion outlined above. So when the day of reckoning of the past policies finally arrives in the future the price will be geometrically larger. We are now in a vicious circle where previous bad policy's lead to more prescriptions of the same, the financial officials can huff and puff and talk about controlling inflation but will never be able to do so as the medicine will kill the patient. They can NEVER withdraw the injection of easy money and credit. And I mean never!!

Take a look at this chart from www.shadowstats.com regular readers will recognize this from a previous edition of Tedbits (called easy money forever, see the archives at (www.TraderView.com). This chart shows CPI as it was calculated before the Clintons took office and changed the methodology so to fool the people as to the true rates of inflation, allow for untold numbers of new programs to be created with the money, while gypping the beneficiaries of the current ones. Another government promise unfulfilled? What's new about that? Nothing. Politicians and central bankers are the masters of illusion, and double entendre. Only a true wordsmith and economic historian can discern between the truth and the sleigh of hand and mouth foisted on the general public by these rascals.

This chart is one of the principle reasons the budget deficit was brought under control as the government baselines (government budgets growing at the rate of inflation) of budget growth were brought to a lower level. Courtesy of the fuzzy math brought to us by the US government, Medicare, Social security, wage and all entitlement growth was restrained to the lower numbers while the real economy was growing in excess of the old measurement. They then raised taxes to enhance government boondoggles, vote buying and general pork barrel. Germany has used this technique over the years to recover its export competitiveness by restraining wage and entitlement growth with numbers like these while quietly understating growth along the higher line and substituting higher taxes on the higher incomes to mask the true amount they are taking from the German economy. All governments now use this technique to hide the theft of money from higher taxes and theft of purchasing power caused by fiat money and credit creation. It allows politicians that represent the "something for nothing" constituents to deliver on the tooth fairy promises of something for nothing. And there is a lot of something for nothing thinkers and politicians in the western developed world. In fact they constitute the majority of the electorates and politicians worldwide.

But the true tale of this chart is that it has now been unfolding for years (compounding upon itself, see the price of gold), and is now getting outside the grasp of its government perpetrators as CPI and PPI are now beginning to resist even the statistical manipulations. Prices are soaring; foods, energy, rents, home appreciation, everything left out of these calculations are exploding in price. And the "manipulated" core elements of these measurements are being dragged higher as suppliers try to price in the loss of profits and operating margins. And of course the workers are demanding higher wages as labor markets are tight and their wages bring home a lot less of everything, less housing for the dollar, less groceries, less gasoline, less health care, less, less less, of everything. Can you recall any project "Government or Private" in your recent memory (last ten years) that is coming in under budget? If I think about it very carefully? NO.

Inflation in the headline CPI is now over 6%, take a look at the rate of inflation in just the last three months;

Recreation

-0.9%

Education/communications

+1.5%

Transportation

+3.8%

Apparel

+4.1%

Housing

+4.2%

Food/beverages

+5.9%

Medical

+6.0%

Other goods and services

+6.8%

If you wonder what inflation is in the pipeline look at this next chart going back to 1960, see how they have systematically understated inflation. Notice the high correlation in the numbers till 1984-1985, then it deviates as Greenspan took office and the statisticians went to work, and invented a thing called "Hedonic Pricing" (for instance, if your house value goes up 8% per year, but the rent goes up only 1%, the inflation number reported in the Inflation Indicies is not the true 8% inflation, but rather the 1% increase in rent.) The Maestros fingerprints are all over this debacle, look at how the correlation between the reported, core CPI (consumer price index), PPI (producer price index) and PCE (personal consumption index) numbers and the CRB index deviated more and more and more as he stayed in office almost 20 years. Do you think they can break the correlation projection this next chart implies? And they have used these phony numbers to direct monetary policy for all this time?

If you adjust your income in light of these poorly reported numbers you made a lot less than you think you did over that time frame! Now that we see the full extent of the misstatement of the inflation numbers and what the future projects to be as it can be easily extrapolated from this chart. The compounded underreporting of inflation, over a 20 plus year period. Think about all the Federal Reserve Employees and Governors who have served their whole careers in this environment. They have known nothing but this as the natural order of things. They know nothing but lying with numbers, as it is all they have known for their whole careers. It is what they are trained to do. They believe their own lies, its inculcated into the institutions of the Federal Reserve and government. Think about all the theft of people's savings this represents by the Government authorities while it sat in the banks? As the politicians funded and fueled the "something for nothing" mentality into several generations of citizens. These people are mentally crippled.

We know about the housing and mortgage debacles unfolding (see previous Tedbit), but lets take a look at the almighty consumer, as the United States is widely acknowledged as a consumer economy. Almost 70% of GDP is derived from consumer spending; the politicians have already destroyed the manufacturing sectors of the economies (see attack of the locusts in the Tedbits archives at www.TraderView.com).

The highest debt loads by consumers in 27 years combined with no savings in the bank!!! And a collapsing savings rate as people are forced to spend more and more money to just buy the same amount of groceries, gas, housing, health care and education, etc.

Think about what a tightening would do in a US economy that is set up like these two charts illustrates, it is a recipe for catastrophic rolling bankruptcies. Do you understand how much deflation would be would be unleashed if this consumer credit bubble is popped at this time? By a tightening of interest rates and a draining of liquidity. Will the Federal reserve drive a stake further into the mortgage market and create even more of a problem for the average US household? Consumer spending growth doesn't look set for vibrant growth in any event.

The monetary authorities need to restrain money and credit growth to purge the system of inflationary pressures, poisons and bubbles, to restrain runaway growth and inflationary pressures in goods, services, and wages. But there is no will in government or the public to do so. And even if they wanted to they can't as the hyper leveraged asset backed economies around the world and US households in particular would collapse taking the worlds Economies, monetary and financial systems with them. To compound the inflationary problems and inability to restrain the stimulus going forward, we have the previous four years of monetary expansion clogging the banking and financial depositories, great big gobs of money sitting there looking to chase returns and create another bubble wherever a bull market in anything emerges around the globe. This money on deposit is then used to lend 20 times more than is on deposit courtesy of the fractional banking system. This money and credit is used to do, what else? Buy inflated assets on credit!!

They can Jawbone all they want, raise nominal rates (in Europe, not the US,), as they will still be well below the REAL rates of inflation, effectively paying the borrower to borrow the money. For example, if you borrow money at 4% and inflation is at 7% they are effectively paying 3% of the inflation to you to borrow the money, you can then buy an investment that really doesn't make sense in a normal interest rate environments and still make money... a greater fool can always be found if he or she believes things go on forever. .

And of course this was the seed's of the housing and construction bubble in the previous Tedbit. Think about it, your payments are at a 4% interest rate while your house is appreciating at a 7% compounded rate, a nice racket if it can last forever, unfortunately it can't. The deflationary busting of the housing and mortgage finance bubbles insures that tightening cannot be done to combat the accelerating inflation rampant in everything around us. The monetizing of the problem in the housing and mortgage bubble will be pure gasoline on the fire that is general everyday economic inflation. It will be hundreds of billions of dollars dropped right into the banks across the country and world. They not only can't tighten but also probably will have to ease to save as many poor sob's that they can that got caught in the housing, ARM and sub prime debacle outlined above. Adding even more gas to the inflationary fires that are burning out of control, in the walk about economy.

Everyone was looking to the Federal reserves meeting earlier this week wondering whether they would raise rates to combat runaway core and headline PPI and CPI. The true answer is they can't. Federal Reserve governors Moscow, Poole, etc. can say anything they wish to push back at the psychology of inflation. But the compounding of under yielding investments has now gotten to the point where if they even wanted to tighten they couldn't as the financing that underpins previous highly leveraged asset purchases will collapse when the valuations crater during the tightening, and the repricing of the risks they really engender.

Unfortunately for all of us their ability to effect a tightening has been effectively removed from their policy options... The only option is more and bigger injections of money and credit, forever! Just as a heroin junkie always must get a little more each time just to get back to a little less high than the previous one, the monetary authorities must do the same with money and credit. And because the developed world has been living beyond its means since the early 70s Breton woods agreements when currencies were forever torn from their gold moorings.

They may even be able to leave rates alone or raise rates a little, but leave liquidity abundant, but this once again is problematical in respect to the millions of Arms that have to reset or refinance. They will choose the path of least resistance and political expedience, they will print the money and let inflation run away and lie about inflation numbers. The Federal Reserve is scared to death about inflation but know they can do nothing or risk losing everything, (economic growth, the banking system, etc.). Notice how the Federal Reserve dropped all references to future tightening? And briefly mentioned the turmoil in the housing and Mortgage markets. The FOMC saw the problems to the economy and financial system on the near horizon Wednesday and "Blinked", paving the way for the easing that must come soon. It was a stunning statement. The "Bernanke put" has been be born (it actually was born last May/July). Bailing out investors, again, again and again. Investors now are well trained to take stupid risks knowing they will be bailed out, Moral hazard on top of Moral hazard. Supreme overconfidence is encouraged, just look at the VIX. The mispricing of risk is set to continue. As the markets clearly signaled as they voted with their feet and sent everything market higher (stocks, bonds, commodities, gold, oil, etc.), except the dollar. Expect rates to be 1% lower by the end of summer, a Waterfall easing, ala Greenspan circa 2000-2003. Can anybody say bull market in things that can't be printed? And because of this...

Shift Happens and its set to accelerate

In the last 10 years three billion people have started to climb the first rungs of the Global economic ladder and are lifted out of poverty and ignorance. The shift of wealth is set to accelerate as the "sea change" (See Sea Change, the wealth of the world is rotating in The Tedbits archives at www.traderview.com) of prosperity and economic growth swing from the developed world shift to the emerging economies. These people are working 60 hours a week, saving and investing, and going to school a recipe for success wherever you reside. The west will continue to grow but is in a general decline that is well entrenched and gaining momentum on the downside, and as any trend follower knows it is a big opportunity to identify an established trend early and ride it for all its worth for a long period of time, they generally go farther and last longer than anyone can imagine.

Well, I believe the world is going to continue to grow, both in developed and emerging economies. But because of Globalization, trade liberalization, modern communications and transportation the trends are entrenched and rapidly accelerating. Take a look at this chart, given to me by Clyde Harrison of Brookshire raw materials (www.brookshirerawmaterials.com). Clyde neatly sums up that the world is not going to end because of what's unfolding globally in a fiat money and credit world. It will continue to grow and grow quite nicely, but the west is going to revert downward to the natural growth rate as illustrated and that the emerging world will revert upward as illustrated. It reflects a lower standard of living for the people who don't wish to compete in life and markets and a higher one for people who do.

When you look at the next chart the centerline represents the linear regression of total world GDP of all countries (we'll say for this exercise it is 4.5% all countries combined) the notice how the momentum of the western economies is carrying the developed world beneath the average with strong momentum to the downside. Then look at the emerging BRICs (Brazil, Russia, India China, etc.) have now gone above the trend and the momentum has now carried them solidly above average world growth rates. The growth really accelerated after the Asian and Russian debt crisis flushed out the system of poorly underpinned foreign debt obligations and previous bouts of international theft in the bond and lending markets. After that they never looked back, the total collapse of the marketplace gave them the courage to reform their corrupt financial systems and let people make money rather than the state.

Since we drew this chart ourselves, let's look at a couple of charts from recent missive from the widely admired Martin Wolfe of the financial times. They illustrate the message of our chart quite nicely using historical numbers...

Notice the steady deterioration of the western economies since the early 1960's as the welfare state programs took hold and the "something for nothing" mentalities started building? WOW, this is a shocking testimony to the past 45 years. This is the price the west pays for its "Social Safety net" and welfare programs, as in all socialist or left leaning/drifting countries there is always increasing misery, as instead of an expanding income pie, you have everyone trying to grab a peace of shinking one as more and more people climb on the wagon and less and less pull it. The hard workers quit or vote with their feet as increased efforts don't pay, they are always taxed away in ever increasing amounts. The the western politicians solution for this tendency of voting with your feet is shackling its citizens on their worldwide earnings, not just domestic ones. The founding fathers of the United States are rolling over in their graves, as this is why they fled Europe in the first place. To be able to keep the fruits of their own labors. It is enshrined in the american constitution, but eviserated by the corrupt leaders of our country. Absolute power corrupts absolutely as it always has, the elites have banded together to the detriment of the general public. It was communicated to us in the federalist papers which no one reads or knows anymore. History of our forefathers be damned.

This chart clearly shows purchasing power of the worlds economy's rotating from India and china to the US from 1820 up to 1980 then now back to China and India more recently. India, China, Russia are coming on strong while the west is now declining steadily. This is what the first chart above illustrates written from history. Just as Chinese income has quadrupled in 15 years, and Russias has doubled in 6. The US and Europe's incomes have gone sideways to down during the same period. Many will say our incomes have increased in the west, but if you look at the chart from shadow stats using real inflation numbers that is a lie. Just as real income growth (growth after inflation) is a lie in the developed world.

Many people in New York and London are postulating that as the US sinks in recession the BRIC's (Brazil, Russia, India and China, and the emerging world in general) will follow. Well think again, Domestic consumer demand in China is up 20% year over year, as it is in India, and Russia etc. If inflation and the world economy are in decline why are raw materials on their highs? If demand declines from the United States, their domestic markets are ready to absorb the production, and increase their own demand. These nations have healthy reserves and savings. They have savings for a rainy day as they know governments are good for nothing, they can't be relied on for security, food or health care. They have learned the virtues of hard work, education and saving to prepare for these needs as they arise. There are no social safety nets in these or other emerging economies, none that work in any event. It a great motivator for the laziest in their societies.

So they save save save for a rainy day. And those savings in a fractional banking system are the seed corn of future factories, Jobs, production and infrastructure projects in these emerging blooming CAPITALIST economies. They are determined not to go back to where they came from; "poverty and ignorance" and dependence on socialism and communism. For people ready to embrace change can grow from it, those that run from natures laws are doomed to decline. While the developed world encourages the "something for nothing" or "depend on government to protect you" mentality. It is Weakness encouraged!!!

Now lets take a look at a video I received over the internet called "shift happens." It is a 6 minute video and you can access it at; http://www.scottmcleod.org/didyouknow.wmv. It is profound, and true! If you think you or anybody can avoid this by refusing to compete in the global economy, well watch this video. It holds hope for us all that things will continue to grow because of the wonderful technologies that have entered our lives such as the Internet, personal computers, modern transportation. It is moores law ( Moores law is the the general understanding that the computing power of modern microchips double in speed and power every 18 months) written broadly in the world economy courtesy of modern communications, computers and the internet . But the wave emerging from the developing world as it steps onto the global stage is unstoppable. Globalization is unstoppable. The US school system is in shambles and collapsing by the day, how long will our leaders feed their political goals and let their teachers unions continue to fail us? Dumb down our future generations? Be unaccountable for their work product? The answer is; till it's too late...

The only thing that can create a prosperous future is by embracing it. Encouraging good character traits such as hard work, excellence in education, saving and investing (there is no constituency for this in the western developed world). Politicians do this by rewarding this behavior, not by punishing and destroying it as they now do. You do this through understanding the sources that created the wealth we now have and encouraging us to return to the roots of our previous successes, not by implementing the policies which caused to emerging world to fail before it learned the benefits of capitalism... Socialism, fascism and communism have shown their failings over and over in history, why are our leaders embracing it? Answer to serve the public, the public that believes in something for nothing, who then elect them to try and deliver on this impossible promise!!!!

In conclusion, The opportunities are enormous, as are the pitfalls. For the smart money it will be challenging but very very rewarding. The economies of the world will continue to grow (or boom) as at this time they are well funded into the forseeable future. There is more money than is imaginable sitting in the worldwide banking systems chasing any opportunity and the markets in general will rise, but suffer unbelievable setbacks as markets crash after getting ahead of their fundamentals. When they become bubblicious from the firehoses of hot money that races to them chasing them as they emerge. Plunge protection teams stand at the ready throughout the world to address the "Fingers of instability" such as housing, mortgages, and Nasdaq 2000 to name a few. You can invest in these broad social and economic trends or be killed by them (If you wish to invest in them contact me www.traderview.com). In the next Tedbits "fingers of instability" series we will cover several challenging mental exercises, such as 'All currencies decline", some just do it faster than others, "Here comes the bidders" the wind at the back of asset backed economies, and "hedge fund" households, and return of the "ECONOMY KILLERS". LOL. Don't miss it!!! If you are looking for some smart thinking in capturing these opportunities as they echo through the markets then give me a call or contact me through the website at www.TraderView.com

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Ty Andros

Author: Ty Andros

Theodore "Ty" Andros
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Tedbits is authored by Theodore "Ty" Andros, and is registered with TraderView, a registered CTA (Commodity Trading Advisor) and TraderVest Clearing LLC a GIB (Guaranteed Introducing Broker). He currently is the principle of TraderView, a managed futures and alternative investment boutique. Mr. Andros began his commodity career in the early 1980's and became a managed futures specialist beginning in 1985. Mr. Andros duties include marketing, sales, and portfolio selection and monitoring, customer relations and all aspects required in building a successful managed futures and alternative investment brokerage service. Mr. Andros attended the University of San Diego, and the University of Miami, majoring in Marketing, Economics and Business Administration. He began his career as a broker in 1983, and has worked his way to the creation of TraderView of which he is the sole owner. Mr. Andros is active in Economic analysis and brings this information and analysis to his clients on a regular basis. Ty prides himself on his personal preparation for the markets as they unfold. Developing a loyal clientele.

For greater insight into the philosophy behind Tedbits, have a look at the Tedbits Overview - To help understand our mission in serving you, the TedBits Overview gives a broad description of what's unfolding globally and what you can expect from Tedbits as a regular reader.

DISCLAIMER AND TERMS OF USE: While TedBits strives to present accurate and useful information, we make no guarantee of accuracy or completeness. All information and opinion expressed herein is subject to change without notice. Opinions and recommendations contained herein should not be construed as investment advice. Under no circumstances does the information in this column represent a recommendation to buy or sell any securities or commodities. Do not assume that any recommendations, insights, charts, theories or philosophies will ensure profitable investment. The information contained herein is for personal use only.

Gold and silver backed means that various commodity options strategies in gold and/or silver may be used. When buying options, you may lose all of the money paid for the option. When selling options, you may lose more than the funds received for selling the option. Strategies using combinations of positions, such as spreads or straddles, may be as risky as taking a simple long or short position. A high degree of leverage is used to buy or sell a sufficient quantity of options and/or underlying futures contracts equal to the value of the entire portfolio. The high degree of leverage can work against you as well as for you and lead to large losses as well as large gains. Absolute-return is not meant to imply that a positive return can or will be achieved. Absolute-return describes investment strategies which are designed to have the potential to succeed in rising, market-neutral and falling market conditions. Gold and silver backed and absolute return investments do not mean the investor will take actual physical possessions of any precious metal. Nor should any promise or guarantee be implied that such investments will perform better than any other investment in any possible future scenario described herein nor that such investments can or will preserve or protect in such possible future scenarios.

TedBits may include information obtained from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made to ensure its accuracy or completeness. Many of the statements and views made are the opinions of the author. Opinions expressed are subject to change without notice. This report is not a request to engage in any transaction involving the purchase or sale of futures contracts or options on futures. There is a substantial risk of loss associated with trading futures, foreign exchange and options on futures. This letter is not intended as investment advice, and its use in any respect is entirely the responsibility of the user. Past performance in never a guarantee of future results.

Copyright © 2006-2014 Theodore "Ty" Andros

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TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/