Archive for June, 2011

Bill Gross of Pimco tweeted over the weekend what he thinks will be an “unofficial announcement of QE3”- Here’s how it will be sold:

-They won’t be calling it QE at all

-It will be “Interest Rates” focused on Longer Term Treasuries

-They will announce that they won’t allow rates to rise above a certain level

-They will buy the additional treasuries required to keep rates at the Capped Level announced

-They will not assign a $ amount to the QE- This is far more dangerous

This is a far more dangerous situation with regards to QE- in that there is no cap to the amount that they will print.  There is no number assigned to the amount they will print.  QE2 was $600 billion, but now, QE3 will be “Whatever it takes” to keep interest rates at a certain level. 

This is still QE- it is printing money to buy bonds to keep interest rates artificially low- and that is exactly what this program is.  The danger is in the lack of a cap in money printing.  The questions that should be asked- How many treasuries must be purchased $$$ to keep interest rates at this “assigned” level?  A question that I know won’t be asked or answered. 

In my blog weeks ago- I predicted that they would do a QE3 but rebrand it.  Should Bill Gross be accurate in his post, I’d say they aren’t really assigning QE3 a name, but they are continuing the program in probably a “worse” form than QE1 or QE2, and they are definitely rebranding.  We will know for sure within the next 2 weeks. If this is the case- I’d definitely get a jump on the commodities train, they are going to soar. 

John F. Haettich- 6/20/2011

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The headline news of the week seems to focus on Greece and their position on the edge of the “debt default” cliff.   We are looking at a huge mess that is getting ready to unfold.  Meanwhile, our fearless leader pledged financial aid to Greece in order to keep them from the free fall.  Please realize- Greece is the tip of the default iceberg.  When you look at countries that have the potential to default on their debts in the near future, the list is discouraging.  Ranked in order of probability of default- the countries in the most trouble are:  Venezuela, Greece, Argentina, Ireland, Portugal, Dubai, Egypt, Vietnam, Lebanon, Hungary, Croatia, Romania, Lithuania, Iceland, Bulgaria and Spain.  All of these countries run the risk of default within the next 2 years.  Do you really think that the IMF, the World Bank, the EU, or the US will be able to bail out all of these countries?  Keep in mind, an IMF bailout is the same thing as a US bail out- as we primarily fund the IMF. 

Should they continue to prop up this failing government and their banks, the Euro will just continue all the faster into a tail dive.  It will spell major problems for the region.  Should they default, the government in Greece would essentially collapse, and there would continue to be massive unrest, riots, etc. in the streets.  Over time, a new government would have to be formed, and hopefully the corruption and spending problem will be corrected.  Either way, there will be pain felt throughout Europe.  A soaring 80% of Greek debt is owned by European banks, so this pain will be felt across most EU nations.  Unfortunately, I think we are looking at another bailout for Greece due to the fact that banks seem to be running the EU.  It is only a matter of time when the dominoes begin to fall in Europe.  There are just too many European countries that are at the edge of default, and it seems there is no ethical leadership left on the continent.  The neighboring countries of Bulgaria and Romania will immediately be at risk, as Bulgaria relies on Greek banks for 45% of their lending and Romania receives 25% of their loans from Greece.  These economies are already weak, and will crumble one after the other.  These debt problems will not go away by osmosis.  The time to pay up is here, and the consequences of easy money answers are fast approaching. 

Also today, the IMF issued a warning to Europe and the USA, that if deficit spending isn’t cut immediately, they are playing with fire and crisis is imminent.  That is a pretty pointed warning don’t you think?  Yet I haven’t really heard of any progress on our deficit situation, nor have I heard of any progress on our debt ceiling talks.  The most I’ve heard is that the first lady is taking an extravagant trip on the taxpayers to South Africa soon.  The White House is as oblivious to our economic problems, as Lady Gaga is oblivious to the need for clothing.  At the same time, it seems that White House economic advisors are bailing in droves.  I know I would- I mean who would want to be held responsible for destroying the greatest economy in the history of the world.  Not something I’d like on my resume. 

On the CPI front, there are a number of other countries that are battling record inflation currently.  The result of loose monetary policy is being felt worldwide.  Countries that are now posting over 10% Inflation year over year include Egypt, Venezuela with a soaring 22%, Vietnam, Angola, Pakistan, Kenya, Mozambique, Nigeria, Bolivia, Bangladesh, and Paraguay.  Not far behind them at 9% are Russia, India, Argentina, Ukraine, and Ghana.  All of these countries are failing to cope with inflation effectively, and social unrest is not far on the horizon.  China is posting a 5.5% CPI, and the US is sitting at 3.6%, but as you probably already know, these numbers have been manipulated as a result of the Boskin Commission in 1995.  True US inflation is closer to 7-8% at this point.  Inflation is a worldwide cancer that is attacking economies left and right.  This just adds to the debt and default problems of the world and fuels social unrest and dissatisfaction with corrupt governments.  It seems that there is instability on a large scale approaching our newly forming global world. 

I’m now seeing reports all over mainstream, indicating that rising prices can be blamed on supply issues, or uncertainty due to war, or even the weather.  This is an age old game governments have played all throughout the history of the world.  Corrupt governments have always tried to “explain away” the inflation that is occurring in their economies, inflation that is truly a result of loose monetary policies and deficit spending.  The facts will show you that the core cause of price increases all over the world is inflation- an expansion of the money supply.  Does supply play a role in price?  Absolutely, but through analysis you will find the price increases we are seeing are clearly inflationary.  You may have noticed that oil prices are down again in the mid 90’s.  I’d recommend buying now while the prices are low.  Oil and energy prices in general by all economic indications will be in a bull market for quite some time, and the prices will be going up in full force.  The media is even continuing their campaign to prep the public for higher energy prices, even coming out with a report this week indicating that high oil prices can coexist with a growing economy.  Time will tell, but I see oil reaching the $150 to $200 range in the near future.  What will it take for the US to get real when it comes to energy?  Our country sits on some of the largest oil reserves in the world, yet in 1980 we were producing 8.597 million bbls/day, and today we produce a measly 4.950 million bbls/day.  On top of this data, OPEC is indicating that supply will be decreasing and they remain deadlocked on any agreement to increase production.  Given this data, along with inflationary increases that are coming with the decline of the dollar, oil can only go up.  I fear that when it does, the citizens of the US won’t be prepared for it. 

We also continue to see volatility in the markets.  The Dow has been in a ping pong match above and below 12,000.  All efforts to find yields in US stocks are high risk at best.  Yet we are still in the last month of QE2?  The volatility in the market is a key indicator that once QE disappears, the market will collapse.  It is artificial, and reality will hit in the form of crashing stocks.  If the Fed doesn’t step in with a QE3, you could see an international sell off of US stocks that could trigger a dollar collapse.  The next couple of months are going to be shaky at best.  While all of this is happening I tuned in after the fact to the Republican Presidential debates, only to find questions like “What is your favorite color?” for almost a 10 minute portion of the debate.  As I hear talk like this, it indicates to me the severe underestimation of the situation at hand.  This isn’t a time for foolish or silly questions.  These guys need to get serious, or get lost. 

The special advantages of controlling the US Dollar, and printing 80% of the world’s hard reserves, are coming to an end.  The US Dollar cannot operate outside of economic laws forever.  There is one economic certainty, and that is that the US Dollar must decline to the other major world currencies, or America will face an unprecedented economic slowdown.  Our chronic trade deficits and rising debt guarantee this.  From Europe, to the US, to Venezuela, to India- times are changing, economies are falling, governments are transforming, and currencies are failing.  The key to survival and success in the coming decades won’t be in holding a secure job and building a good 401K.  The key to survival will be found in your understanding of economics, and in your ability to be strategic in a time where most are clueless, angry, and panicked.  The keys are free- you just have to seek and possess them.  That’s all I have for today.

John F. Haettich- 6/17/2011

It is becoming more evident in recent weeks that things aren’t as rosy as they have seemed in the first and second quarters of 2011.  It has been several weeks of bad economic news piled upon more bad economic news.  In recent conversations, people have been saying “we were in recovery, what happened?”  It’s a slow awakening, but never the less, it is an awakening.  We are slowly seeing news of the truth being leaked into the mainstream, while mainstream media in general continues to be clueless of our true situation and even seems incompetent in their ability to ask difficult economic questions.  There was an article in CNN recently saying that we are at risk of a “double-dip recession.”  My question- who writes this stuff?  It’s the equivalent of a ninth grade geometry student attempting to report on calculus.  What double dip?  We never truly recovered from the first dip and have been in steady decline.  With a steady analysis of the numbers and facts, the truth of our economic situation is easy to see, yet the right questions are not being asked and answers have not been demanded. 

An article today, entitled “Fed will buy $50 billion of Treasury’s in final QE2 push”, indicated that the Fed will conclude their bond purchasing program, but will continue to reinvest maturing securities to the tune of $12-16 billion per month.  This indication that the Fed will cease and desist bond buying after June, is a farce.  The big question that our media should be asking is “Who is going to buy these treasuries now?”  The Fed has been responsible for buying over 70% of new treasuries, and this is not chump change.  They’ve pumped $600 billion into treasury purchases (via increase in money supply) in just the past 6 months alone.  The first round of QE- (QE1) was a $1.73 trillion dollar addition to our money supply.  As of today, a 3-month treasury is yielding .03%, 2-year yields are .28%, 5-year yields are 1.57%, 10 year yields are 2.97%, and 30-year yields are 4.18%.  At the same time, the credit outlook for the USA via S&P is “negative.”  These interest rates are close to 0%- again I ask, who will buy these treasuries?  What is the strategy?  At the same time, in the Chinese Global Times they are reporting that the U.S. is already defaulting on our debt by allowing the dollar to fall so quickly, decreasing the wealth of our creditor’s forex holdings. 

What will the sales pitch be to sell treasuries?  “Come one come all, don’t worry that our currency is losing value daily, don’t worry that we are over $14 trillion in debt without plans to cut deficit spending, don’t worry that we have a negative credit rating, don’t worry that our interest rates are so low (but we can’t raise them or we won’t be able to pay the interest on your treasury), but buy our treasuries, they are as good as…..well paper!”  What else could we say to sell these treasuries?  We could say we have the largest and greatest economy in the world, but disregard the fact that our GDP is downgraded almost monthly and our unemployment is at great depression levels.  We could say that we are the greatest nation in the world, but I don’t know if China and Russia will agree or even appreciate that pitch.  Anyone attempting to sell treasuries at this point will be seen in this global community as a fool.  They will be laughed at.  The fact is, no one is going to buy these treasuries- the risk is too high. 

There have been many financial meltdowns in world history, but never on the scale that we are seeing here in the US today.  We have the largest economy in world history, the largest money supply in world history, and above all, we have more to lose than any country in the history of the world.  We have quickly taken a dive from what was once the land of opportunity, to the land of entitlement.  As I’ve said in this blog, and in radio interviews- QE2 may end, but not without a stock market crash that will initiate a QE3 for no other reason than the fact that no one else will buy our treasuries.  Our market is so weak, that it is already starting to crash before the end of QE2 with the Dow crashing below 12,000 today.  The other option would be to tighten monetary policy, increase interest rates, and eliminate a large portion of our government as we would not be able to fund it any longer.  Given the political climate of the country today, I highly doubt our government is willing to shrink.  I still have hope that government will choose to downsize considerably, but I’m no fool. 

With QE3, we will find ourselves headed for an even worse situation of dollar devaluation and possible crash, massive inflation, a false sense of improvement in the markets, and debt that is impossible to pay off.  Cost of living will rise quickly via food and energy prices, and the value of our savings, retirement accounts, and dollar based assets will be squandered.  QE will lead us down the road of a dead dollar, defeated economy, and it will ultimately destroy our country and our way of life.  Unfortunately for me, QE3 isn’t a question of if, it is more a question of when and how much?  China is even reporting that the monetary policy options of the USA are nil.  We are in essence backed into a corner with two ways out, but unfortunately both have devastating consequences, and could cost us our country.    The best thing that can happen is a drastic rise in interest rates, accompanied with a tightened monetary policy, but in this scenario many jobs will be lost in every sector of the economy, and the economic correction (a depression far worse than the great depression) would be long and extremely unpleasant.  This is however the best option and would at least give our country and economy a chance at survival, as painful and catastrophic as it may be. 

Who would have thought, that this great nation could be defeated and destroyed, not by an army or military force, but rather from within.  President Abraham Lincoln warned us many years prior to the forming of the Federal Reserve- “The money powers prey upon the nation in times of peace and conspire against it in times of adversity. It is more despotic than a monarchy, more insolent than autocracy, and more selfish than bureaucracy.  It denounces as public enemies all who question its methods or throw light upon its crimes.  I have two great enemies, the Southern Army in front of me and the bankers in the rear.  Of the two, the one at my rear is my greatest foe.”  It is unfortunate that our leaders of the past several decades couldn’t learn from such a wise President.  His warnings, along with the warnings of Thomas Jefferson, James Madison, and James Garfield have fallen on the deaf ears of our present day leaders.  Honor has been exchanged for power, prestige, and greed. 

In 1913, President Woodrow Wilson presided over the forming of the Federal Reserve Banking System.  As quickly as 1916, he came to a realization- “I am a most unhappy man.  I have unwittingly ruined my country.  A great industrial nation is controlled by its system of credit.  Our system of credit is concentrated.  The growth of the nation, therefore, and all our activities are in the hands of a few men.  We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world.  No longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.”  We’ve been warned, and history speaks for itself.  The funny thing about history, it can either save us, or it can condemn us.  Study it, know it, learn from it, and educate others.  We will witness over the next few years the consequences of ignoring another of history’s long lost lessons on the grandest scale ever seen since the beginning of the civilized world.  The lesson is simple- “There’s no such thing as a free lunch.”  That’s all I have for today.

John F. Haettich- 6/10/2011