Archive for February, 2011

There has been a news overload for those that truly pay attention to what is happening in the world over these past few days and weeks.  The market is stalling, commodities are back on the rise, oil is back over $100/barrel, Wisconsin is in the middle of a budget crisis accompanied by protesting, riots are erupting again in Greece, revolution is going strong in Libya, Algeria, Bahrain, Jordan, Iran, Morocco, and many are stunted and confused as to what they should do.  The world is presently full of timely and relevant news, news that can and will affect all of us, yet CNN’s main headline article for most of today is an article about the movie “The King’s Speech”, an Oscar favorite.   The main article on Fox News today was “Jihad bomb plot busted in Texas.”  Again, mainstream news falls short.

Firstly, I must say that if there ever was a time….. now is the time to get rid of paper.  That’s right- paper money is quickly on the decline.  If you own dollars right now in a savings account or in a 401k, get rid of it.  Buy something of value, whether it is food, commodities, oil investments, gold, or silver.  Dollars will have little to no use by late 2012.  If you haven’t noticed, since the US Dollar’s acceptance as the World Reserve Currency, any time there has been uncertainty or war in the world, people have flocked to the dollar.  With the current problems in the Middle East and Europe, please be aware- people are no longer flocking to the dollar.  Today, the dollar lost against every major currency in the world.  This is just another huge indicator that faith in the dollar is gone worldwide.    In this current time of uncertainty and revolution, people are flocking to things other than the dollar to protect their assets.  At the same time, the world is seeing inflation created by the Federal Reserve at an ever accelerating pace.  The value of the dollar is now well on its way to the bottom- a harsh reality that we’ve been talking about for quite some time.  Our own government seals the deal on this currency crisis with their lack of willingness to meaningfully cut spending in any way.  They spend more time lobbying to raise the debt ceiling, than they do on real budget cuts. 

The United States is not only headed for a currency crisis by next year, but also an energy crisis.  As you know, most of our oil comes from the Middle East.  The US has had a deal with Middle Eastern OPEC countries since the 1970’s, agreeing that we would buy their oil (not drilling for our own oil here in the USA), if they in turn buy up our US Treasuries.  This has been the “under the table” arrangement ever since.  These OPEC countries have accumulated a huge reserve of US paper assets over the years.  The energy crisis will come when these Middle Eastern countries realize that they have been scammed and their paper reserves are worthless.  These treasuries through inflation won’t be worth the paper they are printed on.  Not only will they be angry, but do you think they will export any more oil to us here?  We will be left high and dry, to fend for our own oil.  The US will be forced to access the oil reserves that we are sitting on in our own land, but at an extremely high price.  China and Russia won’t be effected by any of this, as they just signed a deal confirming China will buy all of their oil from Russia using Yuan and Rubles instead of US Dollars.  China is displaying an eerie wisdom through these interesting times. 

Last year I predicted $150-200 oil for this year.  Many laughed and said, impossible.  I even had made a bet with a friend last year that Oil will reach $150 by the end of the summer.  He too was laughing at me, until this week.  Libya is the #3 oil producer in Africa, and is a main oil supplier to Italy and other parts of Europe.  As many of you have heard, due to unrest and revolution, oil production is shut down.  Libya exports 2% of the world’s total oil, and it is “out of service” for the time being.  This news was accompanied by a rally in oil prices to over $100/barrel Wednesday, and it has speculators in Japan even talking about possible $220 oil.  This speculation doesn’t even include the thought of inflationary increases.  These revolutions in the Middle East are far from over- they are just beginning.  As unrest reaches into Saudi Arabia- the main supplier of US oil- we will really see the price of oil increase, and I mean quickly.  What does this mean for us?

Energy price increases can disable business here in the US.  We are the most oil/energy dependent nation in the world.  To drive up the costs of energy, will drive many out of business, and will drive our standard of living through the floor.  There is so much volatility, and there are so many things right now that are set up to go wrong economically that if Americans can’t see a need for preparation, there is no hope for them.  We are witnessing a huge game of dominoes, and the first pieces have already been toppled.   Wisconsin is a clear sign that Americans still don’t get it.  

In Wisconsin, we have a situation where the governor is trying to balance a budget and at the same time keep everyone employed.  To do this, he must take away collective bargaining rights from the unions, and government workers must pay more cash into their health insurance plans and their pensions.  He is not attacking all unions, but only government unions.  His other option would be to lay off 6,000 workers.  This is clearly a difficult decision for anyone in office, but at the same time, not so difficult.  It costs approximately $130,000 to employ the average government employee, compared to $60,000 in the private sector.  These unions have bled the system to the point of bankruptcy.  The state has over a $3 billion deficit, with a population of only around 5 million people.  Yet there are mass protests from these government union workers.  They still don’t get the simple fact that we (the states, and the federal government) are out of money.  So many Americans are facing a rude awakening very soon. 

This same mentality has spread to Ohio, and Colorado even had a rally of union workers in the capitol this week.  My point is this- our people aren’t even hungry at this point.  Everyone is still fed, everyone has the basic necessities, yet we already have groups rising up against sound monetary policy.  We will be seeing more and more of these demonstrations as states attempt to balance their budgets.  We are headed for situations where teachers and government workers in other states will feel the need to go on strike to avoid losing portions of salary and benefits. 

This week in Providence, Rhode Island, the Superintendent of schools sent a letter to all 2,000 teachers in the district saying that they are all fired.  They are facing a $40 million deficit in the school system there.  This is of course a measure the Superintendent has taken to gain negotiation ability with the mayor, the school board, and the district to find other places to cut.  We will see this becoming more and more of a problem.  Schools may get cut, along with teachers.  Then what do you do with your kids during the day?  Again, the dominoes have begun to fall.  Please if you haven’t already take measures to prepare for the coming geopolitical and monetary changes.  This is not the end of the world, but it can be the beginning of poverty for the many that don’t prepare.  Oil is still going upwards of $150, the dollar is going to run out of steam by 2012, and we are headed for an energy crises and some tougher times.  Educate yourself and your families- that’s all I have for today.

-John F. Haettich  2/24/2011

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As many of you know, Obama came out with his new budget proposal this week.  I had my doubts that the administration really understands what is happening in economics, and how to handle our problems in a way that turns the ship around- but I was willing to temporarily give them the benefit of the doubt hoping that maybe they would receive good advice from someone, anyone.   After seeing the numbers, I can only say that I have received confirmation.  We have now officially established how clueless the White House has become. 

Just my initial glance at the proposed $3.7 trillion budget was enough to bring about disbelief.  Instead of the projected $1.1 trillion deficit, we can expect more like a $1.65 trillion deficit next year.  Of course this still has to go through some scrutiny- 40 congressional committees, 20 subcommittees, and tons of negotiation and voting in the Senate and the House.  At this point I’m thinking if the president and his cabinet are this clueless, why should I expect the Senate and the Congress be any wiser than the White House?  I’m going to go out on a limb and say, Washington in general has lent a deaf ear toward sound reason on the topic of the economy. 

The most clueless and controversial of them all, Ben Bernanke, had even warned Washington to stop spending at the levels of the past several years as such actions are leading to unsustainable debt problems.  Ben and the Fed are actually funding our government right now by buying treasures through QE, and if Washington won’t even listen to their funders, how could we possibly expect them to listen to and represent the people.  Obama, the Senate, and our Congress all give the lip service that we have to cut spending, but every time spending cuts are proposed; they become effective in years, sometimes decades in the future.  Most of their spending cut plans involve more spending now, in order to cut spending in 5 years or 10 years.  There is greed and corruption completely saturating Washington, to the point of no return.  While most people would like to see immediate  reform and massive spending cuts in order for our economy to eventually return to a healthy state, our government is leading us on a path to monetary and economic collapse as a transition to a healthy economy.  This is a costly path for us all.  The savers and the retired will be damaged the most, as the value of their life-long savings and retirement funds is being swindled by reckless inflation. 

So please would someone call a spade a spade.  President Obama and Ben Bernanke are both either incompetent, extremely corrupt, or just plain clueless.  The majority of the Senate and Congress are power hungry greed filled individuals with little to no interest in protecting our country or our people.  They are far more motivated to make under the table deals with the wealthy and big business, rather than representing the people/the middle class.  This is clear not by my own opinion, but by what they are doing, and in the way that they consistently vote.  The proposed budget is a complete failure in my book, especially given the economic climate around the world. 

Also, we’ve been hearing in the news how our economy is showing signs of recovery, and that recovery is the reason for rising prices at the grocery store.  Really?  Boy is it ever time to educate Americans.  As I stated in my blog many months ago, companies have taken a hit in profit margins last year especially, as they were not passing price increases from inflation on to the consumer.  Had they passed along the inflationary price increases, they would have lost their competitive edge in the market.  This year- that is changing.  The AP reported yesterday “Kraft Says More Price Increases Ahead.”   They mentioned that last year, Kraft raised prices on most of its products in Europe and more than half in North America, but they still saw an increase in input costs by $500 million in the fourth quarter alone.  Their profit margins had suffered accordingly.  They specifically state in this article that the rise in cost is attributed to rising commodity prices in wheat, corn, sugar and other commodities.  Their goal in 2011 is to pass on these rising prices to the consumer more and more, to help in getting back on track with profit margins.  In the past two weeks, Kellogg, Co., Sara lee Corp., and J.M. Smucker Co. all have announced price hikes to cope with increased costs. 

In another article this week, the AP reported “Clothing Prices to rise 10% this Spring.”  They are reporting that cotton prices have more than doubled in the past year, and demand for alternative blends has risen.  Up to this point, they have been able to keep costs down by using cheap overseas labor along with experimenting with fabric blends.  Again, retailers have been eating the costs of the inflation to stay competitive, but this year, they are looking at passing the rise in price on to the consumer.  Cotton is at a 150-year high present day.  Brooks Brothers’ wrinkle-free men’s dress shirts are now $88, up from $79.  Other companies that are planning price increases include Levi Strauss & Co., Wrangler Jeans, J.C. Penney Co., Nike, and Steve Madden designer shoes.  Raw materials account for 25-50% of the cost of manufacturing a garment, so expect prices to rise across the board.  Even Wal-Mart is feeling the pressure to raise prices.  Expect a 10% rise in the spring, followed by more price hikes later in the year. 

Again let’s call a spade a spade.  These rising prices of food and clothing are not coming from an economic recovery, nor are they a sign that economic recovery is coming soon.  As clearly stated by these businesses themselves, the price hikes are a direct result of higher commodity prices.  It is costing the retailer too much at this point to absorb all of these commodity price increases, so they are passing them on.  Commodity prices are up as a direct result of Quantitative Easing/money printing/inflation- call it whatever you’d like.  They are all the same.  QE/money printing/inflation is a direct result of the US government spending recklessly, racking up enormous debts and deficits, in turn requiring the Federal Reserve to print money to fund the spending.  So yes, people of America, the rising prices that you are seeing in food, clothing, and everything else you consume is an indirect result of our government spending far more than our country can afford.  We are on the verge of having a debt that is equal to our entire annual GDP of $15 trillion.  The main problem here is- reckless government spending and astronomical government debt.  Fix this problem, and you will fix the economy.

On the home front here in Colorado, Brandon Shaffer, the Senate President had posted an article over the weekend with the comment “Good economic news: Clean tech jobs in CO grew 8.9% between 2009 and 2010, compared to .8% nationwide.”  My response to Brandon was this:  “Respectfully, I think this is more like good Clean Energy news, rather than good economic news.  Unemployment was at 7.3% at the end of 2009 in Colorado.  At the end of 2010, it inched up to 8.6%, and as of January 2011 it was hitting 8.8%.  While clean energy is seeing growth, many other industries are continuing to decline.  With GDP at around 1.9% in CO, it will be difficult to see any good economic news for quite some time.”  Please, readers, when your state representatives give you blanket statements that make you feel warm and fuzzy, investigate them.  Make sure that their statements are completely accurate and not designed to mislead.  Many times that is not even their intention, but it just looks like good news to them so they share.  It is up to us as citizens to continue a dialogue with our representatives that are both educational and mutually beneficial.  That’s all I have for today. 

John F. Haettich- 2/14/2011

 

Over the past few weeks, we have seen and heard about a massive group of Egyptian citizens that are drawing the line.  They have been assembling peacefully for the most part, but have been pushed to violence as of late prompted by the instigation of government supporters.  Most people in the US are watching this and probably thinking, what possibly could have happened to these people to make them so angry?  What could possibly drive people to fight in mass in the streets, and to rise up against their government?  My questions for the American people are- Have you ever been unemployed?  Have you ever been unemployed and hungry?  Have you ever been employed only to find that you are spending 40% of your income on a small amount of food to feed your family?  These are the conditions that the Egyptian people have found themselves in for years, while the corrupt government has become fat and happy. 

The politics surrounding the region resembles corrupt oppression of the people.  The Egyptian people have been living under the rule of President Mubarak in a “state of emergency” for 30 years.  That basically means, the President has taken the right upon himself to do whatever he deems appropriate without permission from the people.  He has jailed and tortured activists, and stepped on the liberties of the people at just about every turn.  So why is he in power, and why so long?  The United States government has backed Mubarak for one simple reason- he is a friend of Israel.  His entire country is an Arabic Muslim Sunni country, but Mubarak supports Israel.  One of the main groups prompting these riots is the Muslim Brotherhood, a very active anti-Israel group that has promised the attack of Israel when presented the opportunity. 

So now you can see how sticky this really is.  This has the potential to be the makings of the beginning of World War III essentially.  If we let Mubarak go, there is a good possibility that Egypt will become a Muslim country that is anti-Israel.  Israel only has two allies left in the region- Jordan and Egypt.  The King of Jordan this week decided to let his entire government go, in fear of an uprising of the people.  There have been riots this week in Algeria, Morocco, Libya, Egypt, Yemen, Pakistan, Jordan, and Syria.  We are seeing a massive awakening and uprising of people over their governments.  In oil rich Kuwait, the government agreed to pay its people $3,000/month for the next 14 months to prevent an uprising.  Why is everyone so angry?  What is sparking this activism?

These problems all have their root in economics.  People generally are slow to anger as long as they have their basic needs satisfied.  As long as we have food, shelter, clothing, and an ability to financially afford things that bring us joy, we are slow to anger.  This anger was sparked because the basic needs of men and women have not been met due to corrupt governments and their economic policies.  The UN’s Food and Agriculture Organization (FAO) issued a report this week that world food prices rose to an all-time high last month.  The index rose by 3.4% in January.  This is the seventh monthly increase in a row, and is now at its highest level since records began.  Their forecast is that high prices are likely to persist in the months to come. 

Right now we are seeing the biggest effects of these high food prices in low income food deprived countries.  This is why we have major uprisings in developing Middle Eastern countries.  High unemployment rates coupled with wealth inequality, corrupt government, and a sharp rise in food and commodity prices is a recipe for disaster, and is exactly the case in Tunisia, Egypt, and the entire region. 

The policies of developed countries are headed in the same direction.  Not only the US, but China, Japan, and all of Europe have engaged in foolish economic policy that is leading to a similar scene like what we’ve seen in Egypt.  This week, Ben Bernanke could be found pleading with the federal government to raise the debt ceiling again, as we are scheduled to exceed the current debt ceiling in early April 2011 which would cause the US to default on our debt.  Our debt is over $14 trillion.  His QE policy according to his own standards has failed, but the Federal Reserve continues to increase the money supply, along with China, Japan, and the Europeans.  All of these governments have inflation, as inflation is simply an increase in the money supply, but some still haven’t seen the full effects, or the symptoms of inflation which are typically- rising prices. 

Asian countries are really starting to see inflation in their food prices, and are taking action to try and battle it through interest rate increases and price controls.  China can do this because they don’t have a lot of debt.  The US has a different situation.  We’ve seen the beginning ripple effects of inflation and rising food prices, but we haven’t yet seen the wave.  When we do see the wave, we are very limited to what we can do to battle it, as we can’t raise interest rates aggressively because of our soaring debt.  We all know inflation is here, but we don’t yet know how big or bad the symptoms will be. 

Taking a look at our unemployment report- in the last week of January alone, there were 415,000 new unemployment claims filed- or better said, 415,000 jobs lost.  According to the DLS, the economy only added 36,000 jobs for the entire month of January yet the unemployment rate fell to 9%?  Yes, you heard me correctly- we live in a country where we lose more jobs than we gain, yet our unemployment rate drops- just like magic….seriously?  These stats are a joke.  We saw in January 504,000 people drop out of the labor force as discouraged workers, and the participation rate in the labor force fell to a new low of 64.2%.  The government is being completely deceptive with the unemployment rate, as it is clear to most economists that unemployment is realistically well over 20%. 

So if 64.2% of the entire population makes up the labor force- that means that 35.8% of the population including children- is out of work.  With a population of 300,000,000, we are looking at 107,400,000 that are currently not working and not members of the labor pool (including children).  Of those left in the labor pool and classified as unemployed within the labor pool (9%), we see another 17,334,000 people that are unemployed- for a grand total of 124,734,000 people that are out of work, or out of the labor pool.  This is a soaring 41.6% of the population of the United States that is not contributing to our economy.  This is astronomical people- wake up!

With unemployment numbers like these, coupled with the symptoms of inflation that we are guaranteed to see later this year, it is only a matter of time.  People will be hungry, and many will be poor.  The question we all have to ponder is –at what point is the breaking point?  When do the American people wake up to the greed of Wall Street, and the corruption of government?  Donald Trump went on record this week, saying that we could be seeing $25 for a loaf of bread in the near future in America.  He is considering a presidential run, as from a business perspective he hates what is happening to the country.  On our current track, these riots we see in the Middle East caused by high unemployment, rising food prices, and corrupt government, may become our own reality here in the US.  I hope it doesn’t, but I encourage you to become educated and active with your state governments to avoid such a fate.  That’s all I have for today.

John F. Haettich- 2/4/2011