Sunday, February 1, 2009
The Enemy Within... The Case for Gold, Silver, and a Short positions for T-Bills... And the Great Flood...
Things crawl in the darkness
That imagination spins
Needles at your nerve ends
Crawl like spiders on your skin
Pa pa pa pounding in your temples
And a surge of adrenaline
Every muscle tense to fence the enemy within
I'm not giving in to security under pressure
I'm not missing out on the promise of adventure
I'm not giving up on implausible dreams
Experience to extremes (1)
More and more people are concerned not so much of an enemy army invading the United States. Some suggest that the real enemy is within our own borders. Consider these points and the ramifications they "could" have on the United States' AAA bond rating, taxpayers, and anyone who holds dollar-based investments.
According to one Bloomberg source, a cornerstone in Obama's bank bailout is a promise that banks must expand lending programs. "President Barack Obama will require banks to boost lending to consumers and companies in return for taxpayer aid from the $700 billion bailout fund, in a departure from Bush administration policy, a key lawmaker Barney Frank said." (2) The article goes on to state that this is a "lesson" learned from the first TARP program which has had little to no impact, save an increase in bank balance sheets. If the Federal government is looking for lessons learned, I can offer one other suggestion... Do not saddle our nation, taxpayers, and future generations with debts which equate to corporate welfare. Secondly, it is time to impeach any and all members of Congress who believe a quid pro quo plan where banks dump toxic assets for a promise to "loan" money is completely asinine. The only... only logical solution would be a capitalization program for good banks that would pick over the remains of bad banks, and allow the "investors" in bad bank assets to suffer the consequences of a failed capital adventure. Unfortunately, that scenario will never play out due to the trillions of dollars the Federal Reserve has already floated to these bad banks. (3) It is a systemic problem where the FED (whoever they really are) have dictated a policy that could well spell doom to the American taxpayer.
To further this point, it is helpful to consider a chart that demonstrates government spending that is, has, and will continue to spiral out-of-control. The first chart (courtesy of the St. Louis Federal Reserve)demonstrates Federal spending up to 2008.
The next chart compares current spending to all previous levels.
Money has been flowing into U.S. Treasury Bills due to a preconceived notion that the United States' government... its' debt... and the powers that be... are the most stable in the world. The flight to quality has in many ways demonstrated that as bad as the current perception of the U.S. economy is, there are plenty of governments throughout the world that are floundering. This is not to say the T-Bills are the best place to invest... The flight to quality has come at a price where the yield curve has become negative. This brings up a second case as what the little investor like us should do???
While gold has made a nice run, if could well be finding key support at the $900.00 support level. It that support is found, gold(GLD) could well move into the $1300-$1400.00 level out of speculation, fear, and a hedge against the dollar and yen currencies. Silver(SLV) is a poor man's gold, and could easily double in price from its current $11.50 price. Treasury Bills with a negative yield... and continued issuance face an over-supply for a product that has less world demand. Should this scenario play out, it means that the world will seek other places for money security. The flight to quality suggests that money is flying out of T-Bills to other investments. ETFs that short these thing -- TBT is 2x short 20yr treasuries, PST is 2x short 10yr treasuries... TIP may be another option.
The Great Flood
One of my favorite Old Testament stories is Noah's Ark. God saw Noah as a faithful servant, and righteous man. However, the world was filled with evil and idolatry. Once Noah's Ark was prepared, a Great Flood which whipped out life on the planet (save Noah's Ark) was God's way of cleansing the planet. When the waters subsided, it allowed man to rebuild and start over.
In some ways, the current financial crisis at the bare minimum reeks of inequity. Greed and the lust for things has driven this country into a dire situation. Without a cleansing of the bad executives, bad institutions, and business practices, the United States is setting itself up for a bigger problem later.