Saturday, August 9, 2008

Judgement Day

Judgement Day is near at hand, the signs are everywhere, you just have to open your eyes. Except it isn't going to be just one day, it's going to be an extended period of years that for most will seem to last forever.

The only ones who don't see the inevitable collapse of the global pyramid scheme are those who don't want to see the collapse of the global pyramid scheme. In other words the majority in the West are fully invested in the current world order and don't care how many others on this planet have to suffer in order to propagate their consumption-oriented lifestyle. Therefore, in order to see that the decline WILL occur, it's first necessary to believe that the decline SHOULD occur. Those, like me, who believe in moralistic determination, also understand that this current consumption-oriented system which ignores the needs of the majority on this planet, is doomed to fail and was always doomed to fail. The West won the Cold War but far from spending the peace dividend to raise the standard of living for the Rest of the World, instead went about the fevered task of consuming the remainder of the planet.

There is no doubt in my mind that we easily could have solved the world's poverty issues, but we never seriously wanted to, for fear that it would affect our consumption-oriented lifestyle. Any serious attempt to actually solve the issue of poverty has met with the inevitable obfuscating debates around capitalism vs. socialism, which conveniently redirected energy and resources away from the underlying problem at hand. Those economists who say that poverty will be solved under the current globalized (pyramid-scheme) system, are both cynical and callous (not to mention soon-to-be-bankrupt for drinking their own Kool-Aid). The current globalized pyramid scheme is seriously broken and we can't afford to wait another several decades only to realize the situation hasn't gotten any better. Whatever improvement in poverty these past decades, if any, has come at such a glacial pace that only the most hardened or cynical of observers could take heart in the progress to date e.g. The Economist . And sorry Jeffrey Sachs, China is not a model of economic success, it is an environmental, forced labour, and human rights catastrophe of historic proportions. Calling China's unevenly distributed economic rise a miracle, only proves the saying that (even the "best intentioned") economists know the cost of everything and the value of nothing.

Most people on this planet are producers, but they are not consumers. Through hard work and sheer attrition, they literally put their blood, sweat, and lives into the globalized pyramid economy, and they receive a nominal wage in return. The surplus between what they give and what they receive is captured in the wealthy economies in the form of excess return on capital and cheap goods. In other words, our Westernized lifestyle is predicated on exploiting people who are compelled to give their labour (to survive) in return for a sub-human wage - a system most commonly known as slavery.

Forced labour trap
Modern economics is based upon the supply/demand equilibrium model. According to this classic model, supply is shown as an upward sloping line, running from left to right i.e. the greater the price, the more will be supplied. Therefore, according to theory, the higher the price of labour, the more labour will be supplied and the lower the price/wage, the less will be supplied. Unfortunately, this theory is entirely predicated upon the notion that a given 'supplier' (labourer, independent farmer etc.) has sufficient alternate income that she has the choice as to how much of her production she will bring to market i.e. as wages fall, she can choose to withdraw her labour from the market. Clearly, in the real world, poor people don't have this theoretical choice of working less, just because wages have fallen. To the contrary, as prices fall, a labourer or farmer is actually forced to bring MORE supply to market in order to simply survive i.e. at a lower wage, an individual will work more hours just to maintain a bare minimum survival income. Worse yet, as each individual labourer/independent producer brings more supply to market, this leads to a downward collapse in wages/prices. This price trap is in full exhibit across the developing world (and has been forever), having drawn wages and prices BELOW their long-term replacement rate. Wage rates below the long-term replacement rate means that workers are sacrificing their health and long-term well-being by working brutally long hours at ultra-low wages; not to mention, forcing them to accept highly adverse/unhealthy working conditions, just to make ends meet.

As mentioned, this is highly prevalent behaviour observed throughout the developing world - and parts of the developed world as well (Read: Nickel and Dimed: On (Not) Getting By in America), and yet economists cling to their text book supply/demand theories. In other words they have no way of explaining this type of "irrational" behaviour, so they just pretend this behaviour does not exist or if it exists, it's deemed aberrant. Far from being irrational or aberrant behaviour it's typical depression-era mentality which sacrifices long-term sustainability for short-term survival. This same over-supply phenomenon also explains the widespread environmental degradation occurring throughout the developing world as farmers and other independent producers compete to bring as much supply to market by any means possible just to survive.

But then we are quickly reminded that those with jobs are the "lucky" ones. After all, the rest are forced to beg, steal or sell themselves just to survive. So, clearly we are really doing those underpaid workers a favour by exploiting them (apparently it's better to die slowly, rather than quickly...). We are told, and desperately want to believe, that this globalized catastrophe is the best possible economic system ever conceived -irrefutable proof that we are truly a godless species with no value to this planet.

I don't have every answer, and I fully understand that solving poverty will require all of us to significantly downsize our lifestyle. Just as luck would have it though, a forced downsizing is already upon us, so we should take advantage of this coming depression to produce a more equitable distribution of resources. Unfortunately, I have no doubt that this contractionary "retribution" phase will be somewhat acrimonious (to say the least) and will not solve anyone's problems around poverty - far from it.

The fact remains that the poverty issue will never be solved on a worldwide basis until there is a humane minimum worldwide labour and environmental standard. We implement and enforce worldwide/multi-lateral trade agreements all the time, so why can't we implement a global minimum wage and environmental standard? No single developing country can implement its own unilateral labour/environmental standard, because that country would be priced out of world markets; therefore, the standard would have to be enforced by a centralized trade authority and/or the individual Western nations procuring the goods/services from the developing nations. I know, there are always those pesky multinationals to consider, with their penchant for moving their factories around to exploit the next cheaper pool of labour and resources, but I think with enough collective coercion (boycotts, trade sanctions etc.) we could force them in line - if we really wanted to...

Build your own Ark

For those who want to protect themselves from the impending collapse, you need to build your own "ark". Noah had an ark to protect his family from the Deluge. You need a figurative ark to protect yourself and your family from the coming depression. God himself could not have devised a more devastating calamity than the one mankind has brought upon itself.

Your ark should be minimalistic: Hold on to whatever job you have as long as you can, as now is not a good time to start foraging for a new career. Protect your banks deposits - no more than $100k at any one bank. Eliminate as much debt as possible and free up cash flow for necessities - food, clothing, shelter and ammunition. Those who stubbornly hold on to their materialistic lifestyle will suffer in direct proportion to their level of greed and gluttony.

Over and Out (This is my last post)

When I first started this blog back in late 2006, the problems I was predicting were still largely in the future - sure the housing market was in decline, but subprime was not yet an issue, the stock market was still strong, commodities were soaring, and the Fed was in hibernation. Fast forward to today and, as you can see from the news - we've come a long way Baby!

So, there isn't much more for me to say at this point that you can't read about in the newspapers. Reality has finally caught up with fantasy and will soon overtake the lead. So, the sooner you embrace reality the better off you will be, as I am fully certain that everything I have predicted in this blog will come to pass in its own due time.

Good Luck.

Monday, August 4, 2008

So Far, So Bad

The ongoing financial meltdown is working its way towards the acceleration phase. So far, it's been a lurching affair that has kept everyone complacent, including the Mainstream Media who are still debating whether or not we are even in recession!!! The acceleration phase will begin with widespread collective acknowledgement that the crisis is deepening and Government is absolutely incapable of stopping it - a realization that will lead quickly to wholesale panic.

The sequence of events I predicted here are unfolding exactly as I had expected, although some of the near term dates have been missed thanks to Bernanke's numerous Wall Street bailouts -we now have a perfect system of crony capitalism where risks are public (socialized) but the profits are private. It's a great system, if you are one of the .0001% of ultra wealthy Americans who benefit from it.

Notwithstanding Bernanke's desperate measures, the inevitable collapse is more or less right on schedule (+/-) a few weeks.

Here is an update of how things are going so far, along with some updated survival advice:

1) Stock market collapse: So far, the market (S&P 500) is down roughly 20% from the top and I believe another leg down should begin fairly shortly. This next leg down will be the wake up call that shakes the general public out of its drunken stupor once and for all...

In the coming years the stock market will lose 90%+ of its value. I base this prediction on the experience from the Great Depression, the devastating economic impact of credit deflation, and lastly based on Elliot Wave Analysis from EWI.

Position your stock market assets accordingly. If you are serious about surviving the coming Depression, you need to read Prechter's Conquer the Crash.

2) Credit market seizure: This process is well underway and due to accelerate any time now. The acceleration phase will be brutal and I expect hundreds of banks to fail within weeks of each other. Unknown to many, there are literally trillions of dollars of uninsured assets at banks throughout the country. This is primarily because people either have too much money at any given bank (>$100k), or because they own a money market account that is not insured (most money market accounts are not insured).

If you haven't already moved your money around to protect your deposits, then I recommend you do so, post haste. Once the doors close, it will be too late...

3) Fed panics and drops rates to near zero: Been there, done that. The Fed Funds rate is already at 2%, as a result of the largest and most rapid decline in interest rates in U.S. history. The Fed, despite numerous interventions, has run out of ways to prop up the debt-inflated financial markets. The worldwide financial markets are several orders of magnitude larger than the U.S. Federal Reserve, so the Fed is like the Dutch boy with 10 fingers in the dike. To date, the Fed has wasted $500 billion (half of all Fed assets) buying up bad mortages and other bad debts to prop up the banks. Make no mistake, these bailouts are not to benefit average citizens, they are intended to bailout the wealthy lenders who made risky loans. The average citizen who is upside down in his mortgage is best served by simply walking away from his house and handing the keys back to the same corrupt bank that lent the money in the first place.

If you have zero or negative equity in your home, then you need to walk out the door and never look back. You don't owe some corrupt bank a dime considering they just wanted your business up front with no concern as to how you would pay after-the-fact. Don't keep throwing good money after bad thinking the housing market is ever going to come back. The housing bubble we just went through was a once in a 100 years event. The housing market will eventually lose at least 50% or more in value and IF it rebounds it will be only because the Fed is eventually successful in generating massive inflation, which means in "real" (inflation adjusted) terms housing will just keep going down.

4) Commodity market collapse: As predicted, this is already well underway. Oil gave up the ghost last week and staged its largest decline in history. Gold is still lingering above $900 due to geopolitical concerns (Israel/Iran), but I have no doubt the deflationary spiral will pull gold down eventually as well. Gold will ultimately be THE asset to own, but first it needs to correct its massive rise from $250 - $1000 dollars. I expect this 'correction' to be a deep pullback that will make most gold bulls question their long-term gold strategy. Oil will go much higher longer-term due to the peak oil crisis and geopolitical instability, but short-term it could pull back well under $100 as demand falls due to the global depression.

5) Liquidity Trap: Credit deflation is already well underway. As expected the M2 money supply is declining rapidly and is on the verge of accelerating to the downside. Deflation along with bank failures will bring about an inevitable liquidity trap wherein no one is willing to lend and no one is willing to borrow. The lack of credit will decimate the real economy.

6) Bank Failures: Only 8 so far this year, but we are nearing an inflection point where there will be a nationwide bank run...

7) Mass Layoffs: The job market has been slowly caving in and is on the verge of a rapidly accelerating decline. Hold on to your current job as long as you can. This is about to turn into a real world version of "musical chairs" where jobs are the chairs and they keep disappearing by the thousands. If you don't have a job now going into this economic hurricane, chances are you are never going to get one...

8) Real Economy collapses: Due to factors 1-7 this is inevitable and already well underway. As mentioned many times, the Western economy is predicated on credit. Without credit, the economy is going to collapse like a cheap tent and stay collapsed. Many jobs that were a function of the debt inflated pseudo-economy are going to go away and never come back (i.e. Middle Management) .

9-11) Deflation turning to "Flat Tax" and Hyperinflation: As mentioned, deflation is now underway, and when M2 bottoms out, hyperinflation will take over as Bernanke churns out dollar bills. Exact timing impossible to predict, but I think the deflationary phase will be absolutely brutal, yet relatively brief (12-24 months). At the point at which deflation turns to inflation, you need to move your assets to gold and silver.

12) Crime and Anarchy: It's starting now with property crime, but will eventually turn into violent crime...

Saturday, August 2, 2008

Stock Market Con Game

The stock market is the biggest con game on the planet.

As of this week, the stock market (S&P 500) is at the same level it was 10 years ago. That means even cash bank deposits yielding 1% have outperformed the market.

They call it the "secondary market" for a reason, the stock market exists to allow company insiders to sell their shares to the general public. That money you've been plowing into your 401k these past 10 years? That was used to buy shares from insiders who have taken hundreds of billions of dollars out of the market in the past 10 years, while your money has gone nowhere. The common man has been brain washed into a "buy and hold" strategy by Wall Street who need a steady supply of suckers to buy out the insiders. And when I say "insiders" I include those in "buy side" firms such as Hedge Funds who get their information from investment banks long before the public ever hears about it. Reg. FD (Full Disclosure) is a total joke that only washed out a handful of the really bad traders. The fact that hedge funds routinely pay commissions well above what I pay as a measly retail "Active Trader" is all you need to know that the insider trading game is alive and well i.e. inflated commissions are "payment in kind" - thank you very much.

Meet the Country Club
The stock market is just another Ponzi scheme based on cheap and easy growth at all cost. The CEOs of major companies are vastly overpaid and have little or no accountability. After Enron, we were told things would get better, but things have only gotten much worse as Bush & Co. basically neutered the SEC the day they (Bush & Co) took office. Just look at examples such as Charles Prince whose company (Citigroup) lost ~$18 billion which got him fired with a "modest" $42m in severance (see this article from USA Hooray) - poor fella. Similarly at Merrill Lynch, writedowns there have totalled some $19+ billion dollars (to date), as Merrill Lynch just took down another $5 billion in losses this week. Yet last fall, CEO Stan O'Neal was "let go" and given a "mere" $160m in severance for doing such a bad job. These guys are all part of the global country club - this is a cohort of Poser CEOs who made their way to the top not through entrepreneurship or innovation, but strictly through their country club and frat boy connections. George W. is the quintessential example of a guy with zero talent who just bullshitted his way to the top. Every major company in America is now riddled with these pretenders, and this past 8 years has given them the perfect venue in which to succeed at their con game. Their methods are largely all the same, take an existing business and leverage it up to the maximum extent possible, temporarily manipulate the stock price higher based on ephemeral and inflated earnings, cash out, and then walk away, leaving the general public as the bag holder.

If you still have money in the stock market, then I highly recommend you make an honest assessment as to YOUR role in this cash out scheme, and adjust accordingly. Those who would tell you that the stock market outperforms less risky asset classes over the long-term, left out some important details. For example, after the 1929 market peak, the Dow lost 90% of its value in 3 years and then took 25 years to get back to the 1929 peak. If you are planning to retire sometime in the next 10-20 years, ask yourself if you can take that kind of pain. I know I can't. And don't kid yourself that it can't happen again. The current lineup of morons running this show (economy) are the least competent group of policymakers since the founding of the Republic. They are the Country Club Idiocracy and you are their meal ticket.