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Saturday, March 16, 2013

Marc Faber, Peter Kinesa, Eric Sprott, Calcualted Risk, IMF

Investors' Insights:
Week Ending March 16, 2013

"Investors' Insights"

In this video interview with Marc he suggests that markets could push rates higher regardless of what the FED does. So far, the FED has been winning the war with the markets as it throws liquidity into the banking system. And as Marc observes, little has trickled into the real economy. Raising the question as to whether the bank bail-outs are still on-going?

Are Bonds in a bubble? Let's try some simple calculations assuming that in ten years rates will normalize back to 6.4% and inflation averages a modest 4.2% over this period. We will use 30 year treasuries that are currently yielding 3.2% on a simple interest basis.

Cash yield from $10,000 Bond @ 3.2% =    $320

Inflationary cost of holding @ 4.2%       =    $420   
Principal loss due rate mean reversion =    $500 


Wow! This means on a simple interest basis, the bonds pay a negative 6% a year, assuming a modest inflation rate and a return of interest rates to normal levels. This may be a best case calculation, as higher inflation rates are more likely to occur, with the pundits expected shortages in key raw industrial materials along with the climatic impacts on food and water costs. 

Anyway, something to think about along with using shorts on Bonds as an inflation hedge. Hmm.

Dr Peter G Kinesa
First Financial Insights

March 15, 2013

When will it Burst?

We cannot dispute the evidence but the collapse of  world powers and societies on the whole can related to a severe change and loss of the physical inputs needed by its economy. Monetary and fiscal policies failures are the symptoms and not the causes. Now think about what policy-makers are focused on today and you can see why the cure to economic troubles eludes them. They basically ignore physical realities and hold on to the stories of neo-classical economics. 

Peter is right, and Marc along with many others, have something to learn.

First Financial Insights
March 13, 2013

What Deflation Looks Like

Flint, Michigan - 2013 

A deflationary collapse in asset values is 99% certain, because at some point markets will begin to demand real positive returns on market securities. But while an unprecedented asset value collapse is occurring, inflation will overtake the pricing of consumer goods. Things will cost more, assets will be worth less, currency debasement will accelerate, and shortages of key goods and services will be everyday occurrences. Confidence dies - creating social and political upheavals

Faber comments regarding why societies collapse demonstrates a lack of historical and scientific understanding. Very foolish. The collapse of societies has very little to do with fiscal and monetary policy, rather collapses can be attributed to a sudden disruption in physical economic inputs. This includes water, climate, food, or minerals and resources critical to physical survival. 

Great Empires also rise and fall, when their store of wealth and infrastructures have expired, largely because the return of physical goods from far flung colonies is less than the related physical investment and maintenance inputs needed to preserve a presence abroad. This starts a contraction process back to the originating country - that also finds, sooner or  later, it does not even have enough resources to preserve its indigenous population. These former Great Powers are now shifting into the later stages of the Nauru Paradigm.

Need examples? Soviet Union, Roman Empire, British Empire, Spain and so on. Also the list of societies that have collapsed due to an expiry in the resource inputs is also endless, ranging from the Mayans, Easter Island examples to small mining or manufacturing towns in Pennsylvania, Northern Ontario and England.  

Then, there is Flint, Michigan

Dr Peter G Kinesa

March 12, 2013

Marc, here's why societies really collapse.

Never too late to learn...

For the most part, in the short term, Eric is probably right. First, Central Banks, Governments and Global Institutions have all been backed into a corner. He is absolutely right in saying that there is no wiggle room in terms of fiscal or monetary policy. So, Mr Central Banker - what to do? Dump assets - and, generally speaking the most liquid assets Central Bankers hold are gold reserves - thus, the suppression of gold prices.

The problem becomes: When will they stop dumping their reserves above or below board? There is no exact answer here. It could be in three months or it could be in seven years. Each nation and its Central Bank feels there own unique circumstances and will act as they see fit. We are thinking that the longer term dumping pattern will persist as all other measures have run their course. Most are also being constrained on the physical side, as industrial and agricultural commodity supplies tighten. That means, they cannot grow real economic activity to bail themselves out. 

So, instead of looking for long opportunities in Gold and other precious metals, positioning and levering up on the slam-dunk currency, stock and debt "short opportunities" looks to be the better bet both in the short (sic) and near term. And, by all accounts, there are lots of them. Plus, they are not subject to the same manipulative vagaries of government or Central Banks, that can blind-side your otherwise sound investment decision. 

Remember too, guys like Sprott, Faber and Rogers are coming across like promoters; rarely offering a balanced view. For example; Ten Great Reasons Not to Own Gold - that's an analytical dream. 

First Financial Insights
March 12, 2013

IMF Meeting:
"So how did they monetize their Gold?"

They are a number of issues we can take with comments that come from the mouths of pundits. For instance:

"In the 3 1/2 years since the Great Recession ended, real GDP has grown at a lackluster 2.1% pace and is tracking close to that pace in Q1 2013."      

Who said the Great Recession ended three and half years ago? Paul Krugman called it a Depression - he has yet to officially declare it is over. None of these guys seem to know what term  to use " Recession or Depression?" Who is confused?

That said, leads to the next point of contention - or better yet, confusion. What is Real GDP? Supposedly it is nominal GDP less the rate of inflation? However, the problem is no one really knows what the the real rate of inflation is? Rumour has it that the number is subject to political adjustments. More confusion. More BS.

Years ago economists focused on real per capita GDP. They don't anymore. Why? Because if they did they would have to report that we have been in a recession (depression?) for the past 30 years. That's a conclusion, based on our personal experiences, that  feels a lot closer to the truth. Just look at cities like Detroit, Buffalo, Newark, and so on. 

Another salient issue is that GDP should be split into two separate components  - "Hot Air GDP and Real Stuff GDP". This would be even more depressing; as the Hot Air GDP has certainly over taken all the real things that used to made here, but are now made overseas.

It is bad enough that the ship is sinking, but when your instruments indicate that "all is well - full steam ahead"; boy have we got problems. Confused?   

First Financial Insights
March 11, 2013

 Hot Air - a paradox with a whole new meaning...

Feeling left out?

Dr Peter G Kinesa : Feeding the Dragon:Why China's Credit System Looks...

: Feeding the Dragon: Why China's Credit System Looks Vulnerable click above THE BIG MAMA OF ALL CREDIT CRUNCHES This article refle...

Gotta feeling that when economic and market pullback ultimately occurs, a lot of folks will be caught swimming naked. Key words like transparency, accountability, corruption, excess leverage, and oppression are amoung those words that resonate strongly in our analysis - smoke generally leads to a fire.

At the same time, throwing BIG MAMA off this runaway train is next to impossible. So we believe when it hits the bottom - the collision will be devastating, prolonged and deep. Something will have to change.

First Financial Insights
March 10, 2013

That's Some Credt Crunch Coming