Here is a rather long but interesting article published by Rob Grespi (a successful Forex trader) about his opinion on the current economic situation in the United States. It’s rather gloomy, but you never know it could happen just as he describes it. The quote at the end by Rothschild is a classic. I must warn you this is a long read, so make yourself some coffee before you chew into it.
1/ THE US ECONOMY:
Let me put it this way “cut and dry”. I believe that the US economy will enter a severe recession borderlind depression within the next couple of years. Any consumption economy based on Visa/Mastercard is doomed to fail at one point or another, not a question of if, but when.
The US economy is led and has been led by a “crew” of self interested greedy pigs, incompetants and demagogues. All of them now share one thing in common: the loss of all credibility in the international financial market scene, not to mention others. When they speak nobody listens anymore or if they do, they do it to get a good laugh. On the other hand, when the Chinese or Mr. Putin makes a statement the financial markets react immediately. If you stop and think aboout it, it is pretty sad to think the US leaders have become an act in a comedy show. I even take Will Ferrell more seriously than these guys.
Mr. Paulson, US Treasury Secretary, supposedly a man we should all listen to, is known as the “one speech man”. Everywhere he goes he says only one thing: ” A strong USD policy is in the best interest of the US”. Maybe he thinks if he says it over and over someone will believe him. He actually took that rhetoric from his predecessor Mr. Snow, who also said the same thing for the previous six years or so. Keep in mind the USD has lost over 60 % of its value vs other major currencies in seven years time and has lost its “50 year supremacy” with it. These guys are obviously not looking at the dollar as the rest of us in the world are. This same bald headed ugly bozo, Mr. Paulson, said, while live on Fox News in the beginning of August 2007: “The US subprime credit problem is largely contained”. Two weeks later the **** hit the fan and low and behold in September 2007 while traveling to India touting his one speech, he stated: ” The US subprime credit problem will take longer to clean up…”. No kidding.
Another flagrant demonstration of incompetence was shown when one of the “top and most respected” Fed amigos, Mr. Boone, quoted: Dollar decline unexplicable”. Is this guy joking or what? Both of these top “Penderos” actually get paid to say these things.
MY POINT : During the last seven years the US Dollar has lost over 60% of its value over the Euro, GBP, CAD, AUD and others. THE USD has not seen its level below the CAD (is neighbor which btw now boasts a budget surplus) in over 40 years.
A. THE DEFICIT DEBACLE
The twin deficits (Budget and Trade Balance) are out of control. THe US is running the HIGHEST Budget Deficit in its history with a mere 8 trillion dollars or so and rising by a100 billion every month. I call it the “Bar Tab”. The US Trade Balance is running a 50 to 60 billion deficit per month. Sounds outlandish, but go get into the nitty gritty details and the numbers are unfortunately there, glaring at us in the face.
The latest credit crunch the US is experiencing will have longterm effects for years to come. Even if the Fed lowers the rate to 0% to please the markets, it will only delay the inevitable. US credit institutions, after taking heavy beatings on their CDO investments, are in a shrinking mode, and will get more stingy to whom they loan their money to , consumers and businesses alike, thereby affecting longterm economic expansion. As harsh as it sounds this “credit excess” needs to be purged, not bandaided by the Fed. Purging it is, but ever so slowly for the moment.
The Fed is between a Granite Rock and a hard place. It needs to raise rates to attract the financing for the monthly financing of the gargantuan “bar tab”, yet it needs to lower rates to try to avoid a recession. The Fed has chosen the latter to please the markets and its politicians, although a recession will follow anyway. After all, we are in an election year.
Who finances the huge US Bar Tab? The Chinese, Japan and the oil rich countries, that’s who. All these big boys are getting nervous and irritable when they see their dollar holdings, whether it be the Treasuries they buy to finance the deficit every month or the Dollar reserve holdings they own, melting on a daily basis. A Chinese CB official said as much recently in a statement to Washington that I interpreted as: Stop turning the Dollar into **** or we will stop financing your orgies”. Needless to say, the financial markets reacted violently to that.
What does a collapsing Dollar mean to the average American? It means ongoing “invisible” inflation and asset deflation. Both are being experienced now, slowly, but surely, whether the average American realizes it or not.
If the financiers of the deficit reduce or even stop buying the monthly Treasuries Auction (TIC), an important fundamental number to watch, the US leaders will have no choice but to make one of the following two choices:
1/ Find the money some other way (the only way I know is to raise taxes), and/or
2/ balance the budget, and we all know how good they are at balancing checkbooks…they balance their own pretty well tho…
Every time in history the US ran a deficit was to spur economic growth after a period of Recession.This time the US is running the largest deficit of all time during relatively “good times” thanks to a useless war. The US has thereby “blown its wad” before even the “bad times” are upon us. The believers (fools) of the credo “deficits don’t matter” are about to get a big first lesson in “Economics 101”.
THE RESULT: The current Administartion doesn’t give a hoot about the deficit, among other serious outstanding issues they will leave behind, they only have one year left or so, and most of them have cushy high paying jobs lined up, book deals, or corporate contracts waiting for them. IT WILL BE SOMEBODY ELSE’S MESS TO CLEAN UP . WHO CARES?
B. REAL ESTATE
Pouring salt into the US’ wounds is the Real Estate mess. Real Estate is cooked and far from seeing recovery and any bounces will only be “dead catbounces”. Real Estate will keep on bleeding for a long time to come. The American dream to have a home, his castle, is washing awy like a sandcastle come high tide. Man’s “castles” used as ATM machines in the recent past will now have serious consequences for years to come.
C. US EXPORTS
Regarding US exports, a funny line I keep hearing is: The Dollar’s decline is good for our exports. “What exports ?” I ask. “Nike and Reebok products are made in China, Ralph Lauren and The GAP, ditto. Oh yeah, the same thing goes for computers. OK, perhaps American cars? Oh, they cannot be sold outside the US or Canada and GM itself still can’t figure out how to turn a profit in the business, while Toyota is posting record profit.” “No, no, no” says he says, “Ford is selling in Europe”. Sure, this is true and they are very good cars, however they are made in SPAIN!!!! OK, I admit I still need to look into Boeing and heavy machinery, but the overall picture is pretty bleak. Well, as far as I know Budweiser is still made in the US, but I don’t drink much beer and all my European friends that do don’t drink Bud.
I know this tho, The ones that for sure are making money “hand over fist” are the Weapons industry and related military contractors as well as all lots of companies in oil industry and indirect supplying businesses.
NEWS FLASH for gullible believers of this mentality: The trade balance has not shown any significant improvement and the Dollar has shed 60% of its value.
THE BOTTOM LINE: The US is quietly suffocating under its massive twin deficits and flagrant financial mismanagement and is therefore about to pay a heavy price. At the end of the day, US taxpayers will pick up the tab, as usual. Our children and our children’s children will pay the price for generations to come, unfortunately.
The Euro should peak at 1.55s or so, however if it pops these levels decisively, the next level will be 1.80s which was the DMark equivalent in the 80’s. The Euro is slowly gaining ground vs the Dollar as a trade and reserve currency. The ECB is still in a rate hiking mode because the main “mandate” of the ECB is to keep inflation in check. Historically speaking, keep in mind that Europeans are scared ****less of running inflation; it never brought them good luck. Look at Germany in the 30’s, for example, the state of the economy provided just the right landscape to bring one of the most historically deranged loonies to power. I don’t need to mention HIS name…. Therefore, Mr. Trichet is very “vigilant” with regard to inflation, which is currently an issue in Europe. The strong Euro is doing its work in his favor for the moment. The ECB is still in the “rate hiking mode” so the Euro will remain strong as long as the ECB stays this course. I don’t see it changing any time soon. Any retracement, if at all, will be limited to 1.30s at which point it will rise back if the ECB sticks to its guns. Of course, if Europe gets invaded by aliens or nukes, the Euro could take a dive…
The Pound should peak at 2.15/20, however should these levels pop decisively, look for 2.50s, the highs found during the 80’s when Soros shorted the “Pansy Ass” out of the Pound and made a fortune, nearly bankrupting the BOE in the process. The key turning point to keep an eye out for a sustainable Pound decline will be when the BOE starts its rate cut cycle. This should start the 1Q 2008 and if the cycle is long enough, the Pound will see the 1.70s.
The GY will melt to 185/190 and possibly 150s as carry trades will be unwinded. The Yen, since it has almost 0% interest, is used as a borrowed currency vs Pound by Hedge Funds and other financial institutions. Hedge Funds will go out of business liquidating assets in the process. The funds that remain will invest in a wiser fashion, tempering, of course, the needs for excessine borrowed capital.
Also another additional key igniting factor will be when the BOJ hikes its rate and give an indication that a hiking cycle has started.
Last time I talked to my subscribers about a GY “meltdown” was back in June 2007 when I told them: “Chances are a meltdown will comle before Spetember 2007. We had a first demonstration in August 2007 when the GY went from 250s to 220 in two weeks. The next meltdown will be the real thing, a “10 on the Richter scale” instead of a 4.
I published articles over three years ago concerning gold. I have been preaching to my subscribers on KFS since its creation over a year and a half ago to buy gold when it was valued at $350/400. 3Buy gold on dips, you will see $1000″ was part of my regular mantra. I told tem that there were several easy ways in which to buy gold:buy GLD (gold ETF) or buy GBS ( equivalent of GLD) but traded on the London Xchange. Settle the trade in Pounds ( the Pound at the time was $1.78 or so 18 months ago) thereby profiting from from the GBP rise, a two for one special if you will.
Technically speaking, if gold pops the $850 level decisively, it will see ( as old stale supplies are absorbed) $1000. If gold pops$1000 decisively we will see $2000. Key support levels are $550 and $450.
Also to consider: if the geopolitical landscape deteriorates it will also fuel the rise in gold. For example, if the US makes a daring move against Iran, gold could spike to $3000 if we all survive the catastrophic fallout.
KNOW THIS: Politicians HATE gold, which is the reason why they all got together and went off the Gold Standard, enabling them to print money without limits to finance their “hair brained” ideas or ludicrous promises. And print money they do… it’s a 24/24 business.
Let me give you a figure to think about: in the 1970’s there were $8K in circulation for every ounce of gold; today there is over $80K/ounce in circulation. The US has even stopped publishing the M3 two years ago or so. The official reason: “useless information”. The real reason: they don’t want you to know how much money they are rpinting every month.
I read an analysis a year ago that stated that 2/3 of the gold that exists had already been extracted from the earth over the past two thousand years. Of the gold that remains, some is in the bottom of the ocean and some is still in active mines where deeper and deeper digging is required to get to it. Some of these mines are in politically unstable countriesat the mercy of the Government “du jour”.
The days of going Westto pan for gold nuggets are long gone. If they weren’t, gold panning would be my weekend hobby.
Let me give you an interesting historical fact: the Roman Empire lasted almost 500 years. The issuance of metal coins rather than gold coins to pay for trades, good and services marked the onset of the decline of the Roman Empire. Why the switch? The Romans were BROKE. The Romans faced a vicious cycle. They needed to invade other countries in order to retrieve valuable resources, manage those lands and those whom they conquered, subsequently spreading their own resources and men too thin. The Romans were everywhere at once and couldn’t take care of or pay for business at home. Sound familiar????
The oil era is already over (people just don’ know it yet). Uranium is what’s next nad here’s why:
Make no mistake, we are in a silent energy war and the countries that have the foresight to position themselves early will be the winners.
Within the next 10 to 15 years uranium will experience the biggest boom you have ever seen. The boom has already started and prices have quietly risen from $10 in 2000-01 to $150 today and the rise is far from over. Astute investment funds have been quietly accumulating positions in uranium stocks and are in no hurry to see the creation of an ETF, however when such an ETF gets created, I will jump all over it. Presently, the only alternative is to try to buy the right stocks. That’s the tricky part. Let me give you something to think about first: France does not have the reputation to have had great foresight over the past 100 years, but when it comes to nuclear energy, France was right on the money and is currently the worldwide leader in the nuclear power and energy business. The US does not even come close. Here’s what happened: during the oil shock back in the 70’s President Georges Pompidou green lighted a full scale nuclear power development project. He did not want France to be denied electricity or held with her hands tied at the mercy of the oil producing countries. He told the people of France that within the next 10 to 15 years France would produce almost 100% of its electrical needs via nuclear energy that would result in the cheapest and cleanest energy in Europe. The amount of taw the French pay for their electricity is another issue altogether. That’s Sarko’s problem! Well, for once, this President in particular (Pompidou) wasn’t lying telling the public what they wanted to hear. HE WAS CORRECT. The program was further developed during the reign of Valery Giscard D’Estaing. Today, France produces so much electricity that it sells is to neighboring countries such as Spain and Italy. France became and remains the world leader in building and maintaining safe nuclear power plants throughout the world. One company you should all look at is AREVA (arevagroup.com).
Today China and Russia are quietly positioning themselves for their respective futures. Well, they are not even that quiet about it for that matter. China has placed an order with Areva to build 30 to 50 nuclear power plants while Russia has ordered some 40 of their own. France, China and Russia (thanks to Putin’s leadership and foresight) have secured uranium contracts from stable uranium rich countries such as Australia, Canada ans certain stable African countries.
Mr. Putin was only too happy to see the US “farting around” in Iraq to bring about democracy or scampering among the bullets to find WMD (not sure which of the two are valid excuses today). Mr. Putin knew that while the US is busy fighting for a few barrels of oil and construction contracts, it would be distracted from creating a real enegy plan for America’s future. So, when the uranium boom takes place, Russia will be sitting pretty and the US will find itself **** out of luck and again at the mercy of other countries for its energy needs. Mr. Bush and all his “oil crew” will be dead by then (very rich, but dead), and the US will not know what happened. I already feel sorry for America’s future generations.
Here are a few stocks I like: AREVA, BHP BILLITON, CAMECO, MEGA URANIUM, PINETREE CAPITAL. PLEASE DO YOUR OWN RESEARCH!!!! Also, as I said, as soon as a uranium ETF gets created I will jump all over it like “horny sailors on cheap whores”.
For the longterm, consider investing in stable water producing and purification companies. Water will become a scarce commodity: people will fight over it.
The water infrastructure systems in major US cities, not to mention in many countries are due for major overhaul within the next ten years. Look at worldwide leader Veolia.
Lastly, to quote the founder of the Rothschild family fortune: ” When blood is on the street, buy properties”.
That’s it, and best of luck for 2008.