WHAT’S THE REAL
PROBLEM
As
usual, we are concentrating on the effects while the real problem goes
un-noticed. While the world is speculating as to the end of the defaulting
sub-prime mortgages and its resulting CREDIT CRUNCH, both of which are
only EFFECTS, of the real problem of MASSIVE OVERCAPACITY and MASSIVE REAL
ESTATE OVER BUILDING of both residential and commercial properties. Concentrating
on reducing interest rates (which caused the problem in the first place)
will actually make matters worse; witness the last two rate cuts. And yet
the clamor for rates cuts is turning into a crescendo.
HISTORY
REPEATS
Every
bubble has always been caused by excessively low Interest rates, out of
thin air monetary creation and easy credit.But
this time around, an almost complete lack of any underwriting standards
was added to the mix, thus allowing anyone and everybody to borrow any
amount for any reason with no documentation required. The result was a
degree of SPECULATION unheard of in the annals of investing.
RESIDENTIAL
REAL ESTATEwas
the first and biggest bubble to burst.1%
no documentation mortgages combined with five solid years of 20%+ price
appreciation caused a level a speculative overbuilding that will take more
than TEN years to get back to some semblance of equilibrium. You can foreclose
on homes and default on most of the CDO’s, CMO’s
and whatever other anachronisms that there are: You can take massive write-offs
and have the Government re-capitalize (Bail-out) the banks, but after all
of that and whatever else you may do; the vacant homes still remain standing,
flooding the market. Only time and much, much lower prices will clear the
oversupply. And that my friends, is the real problem that NOBODY is talking
about.
OUR
GOLDILOCKS ECONOMY
Goldilocks
was and is only a fairy tale. She never existed and neither did a Goldilocks
economy. She has always been a Wall Street fairy tale which, in conjunction
with the Governments hidden and contrived INFLATION statistics, make Disney
seem like an armature when it comes to selling Fantasy..
OVERCAPACITY,
thanks to our new world-wide economy, is now world-wide, with the worst
case being in
PENSION
FUNDS and INSURANCE COMPANIES: They
are not immune to the now Junk (alias AAA) Bond defaults. So far, nobody
has noticed because they are not on margin and they do not have to mark
to the market on a daily basis. But with the Baby Boomers getting ready
to retire, what will happen when they begin having to start paying benefits?
KILLING
THE GOOSE THAT LAYS THE GOLDEN EGGS
Most
of the world is moving to some form of Capitalism, for the simple reason
that Capitalism is the only system that creates wealth. However, all of
our politicians since FDR, have their Heads up their A-- and are moving
slowly but steadily towards Socialism. And in the name of Environmentalism
and Global Warming, they have, in their ultimate wisdom, put 85% of the
USA ( containing the world’s biggest un-tapped oil reserves) off limits
to drilling, thus funding all of our Enemies ( IRAN, RUSSIA, VENESWELA
etc.) and jeopardizing our national security while guaranteeing that our
coming Recession turns into a Depression. While the world around us cuts
taxes, our Congress and presidential hopefuls are busy figuring out new
ways of taxing the most productive aspects of our society. What can you
expect when the two richest men in the world, who have made all their money
under a capitalist system, are Socialists both in their hearts and in their
minds?
Do
you all not realize that on the day we would announce the permitting of
drilling in Anwar and off shore
NOTE:
There is not an economist, analyst or politician on the planet that even
if they knew anything, has the integrity to tell us the truth, especially
if they still want to keep their jobs. It is much easier to go along with
the know nothing media journalists cum analysts and pseudo-economists who
are clamoring for just a few more interest rate cuts that will solve all.
After all, they all know more than the Fed Chairman, don’t they? Just ask
them.
HOPE
VS REALITY
I
am always amazed at the degree to which people only hear and see what they
want to, completely ignoring the facts as they drive their investment vehicles,looking
only through their rear view mirrors. Have you also noticed that the flood
of new analysts and journalists on both the financial channels and at the
Wall St. Journal are all getting younger and younger and more enthusiastic?
None of them have ever even heard of a Bear Market, let alone seen one.
INFLATION
Inflation
has by definition always been a monetary phenomenon.The
money supply has been growing at a compound 10%+ rate of growth above the
GDP rate of growth for going on 15 years and we still only have core inflation
of 2%? That’s even a bigger lie than the world’s proverbial biggest lies.
In cleaning out my files, I came across my 1999 income tax return and so
I compared my expenses to my 2006 return and discovered that they have
been increasing at a 10% compounded annual rate of growth. That, my friends,
is called Inflation.
GDP
RATE OF GROWTH
If
GDP grew at a 3.9% in the third quarter, with core inflation reported being
2.5% and the PPI at 3.5%, what would be the real GDP rate of growth be
if true inflation is at 10%?
Also,
what would the real income rate of growth be at a 10% inflation rate?When
the French and German Governments project 1% growth for 2008, what do you
believe they really think and expect?
CREDIT
CRUNCH
As
far as the credit crunch is concerned, I repeat: you ain’t
seen nothing yet. I CAN GO ON, BUT IF YOU
HAVE NOT GOT THE POINT BY NOW, YOU NEVER WILL.
WHERE
TO NOW
Nothing
has changed. We are on track to what I have been calling for the last three
months or so: A retest of the August lows followed by a Santa Clause year
end break-out rally to new highs (at least on the DJII). This would be
the kind of action that would generate both a Divergence and the kind of
Sentiment figures that would set the stage for a BULL TRAP to end all traps
and trigger the kind of Bear Market that would rival the 1973-74 and if
we are not ultra careful, the 1929 – 32 Bear Markets. Do not try to play
for this maybe year-end rally. Keep your powder dry and wait for you opportunities
to go short. For those among you who think that you are good enough to
play both ends against the middle, all I have to say to you is GOOD LUCK.
GOLD
We
getting our 5% pull back that we have all been hoping for. Will you all
once again looking a gift horse in the mouth? Have you increased your positions
and/ or begun scaling in? The world is finally beginning to realize the
true value of the US dollar and it won’t be long before they begin to distrust
all fiat paper currency. What do you think will happen to gold once this
realization sets in? We have only entered the middle of the third wave
up, with my initial target for this move being in the $1,300 per oz area.
My long term projections are in the $5,000 plusZone
. NEED I SAY MORE? Can I make myself any clearer?BUY
GOLD.
GOOD
LUCK AND GOD BLESS
AUBIE
BALTINCFA.CTA.CFP.PhD.
561-840-9767
The
above information has been gleaned from information that I believe to be
reliable but is not guaranteed by me. The information provided is strictly
for educational purposes only and is not meant to be treated as investment
advice.